-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NbqFxNfoO+INp1u+lnkG/HrR9TDYXybMUU+2D5mZpLtWq4PdwVEfM+7fPnmm+4Kf hSs8PySOA34uSCRzIu+wJQ== 0000782842-97-000006.txt : 19970328 0000782842-97-000006.hdr.sgml : 19970328 ACCESSION NUMBER: 0000782842-97-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST ALBANY COMPANIES INC CENTRAL INDEX KEY: 0000782842 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 222655804 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14140 FILM NUMBER: 97564790 BUSINESS ADDRESS: STREET 1: 41 STATE ST CITY: ALBANY STATE: NY ZIP: 12207 BUSINESS PHONE: 5184478500 MAIL ADDRESS: STREET 1: 41 STATE ST CITY: ALBANY STATE: NY ZIP: 12207 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1996 Commission file number 014140 F I R S T A L B A N Y C O M P A N I E S I N C . ==================================================== (Exact name of registrant as specified in its charter) New York 22-2655804 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 30 S. Pearl Street, Albany, New York 12207 - ------------------------------------ ------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (518) 447-8500 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered none none - ------------------- ------------------------ Securities registered pursuant to Section 12(g) of the Act: Common stock par value $.01 per share - ------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing require- ments for the past 90 days. Yes X No ------ ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 14, 1997, 5,171,279 shares, par value $.01 per share, were outstanding. The aggregate market value of the shares of common stock of the Registrant held by non-affiliates (based upon the closing price of Registrant's shares as reported on the NASDAQ system on March 14, 1997, which was $11.25) was approximately $17,597,508. 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. Part I Item 1. Business - ----------------- First Albany Companies Inc. (the Company), through its wholly owned subsidiary First Albany Corporation (First Albany), conducts a full service investment banking business with brokerage activity centered in New York and New England. These activities include securities brokerage for individual and institutional customers, and market-making and trading of corporate, government, and municipal securities. In addition, First Albany underwrites and distributes municipal and corporate securities, provides securities clearance activities for other brokerage firms, and offers financial advisory services to its customers. Another of the Company's subsidiaries is First Albany Asset Management Corporation ("Asset Management"). Asset Management serves as investment manager to individual and institutional customers. Asset Management directs the invest- ment of customer and mutual fund assets by making investment decisions, placing purchase and sales orders, and providing research, statistical analysis, and continuous supervision of the portfolios. Brokerage services to retail and institutional customers are provided through First Albany's salesforce of Investment Executives and Institutional Salespeople. First Albany believes that its Investment Executives and Institutional Salespeople are a key factor to the success of its business. Over the last five years, the number of full-time Investment Executives and Institutional Salespeople has grown from approximately 213 to 304, many of whom joined First Albany after previous associations with national brokerage firms. First Albany has organized its business to focus on and serve the needs and financial/capital requirements of institutions, individuals, corporations, and municipalities. As investment bankers, First Albany is positioned to advise, manage, and conduct a variety of activities as requested including underwritings, initial and secondary offerings, advisory services, mergers and acquisitions, and private placements. As a brokerage firm, First Albany offers customers a full array of investment opportunities. First Albany operates a total of 25 Retail, Institutional, and Investment Banking offices in 8 states. First Albany's executive office and largest sales office are both located in Albany, New York. The Company (formed in 1985) and First Albany (formed in 1953) are New York corporations. First Albany is a member of the New York Stock Exchange, Inc. ("NYSE"), the American Stock Exchange, Inc. ("ASE"), and the Boston Stock Exchange, Inc. ("BSE") and is registered as a broker-dealer with the Securities and Exchange Commission ("SEC"). First Albany is also a member of the National Association of Securities Dealers, Inc. ("NASD") and the Securities Investor Protection Corporation ("SIPC"), which insures customer funds and securities deposited with a broker-dealer up to $500,000 per customer, with a limitation of $100,000 on claims for cash balances. First Albany has obtained additional coverage of $24,500,000 per account from National Union, a wholly owned subsidiary of American International Group (AIG), America's largest commercial insurer. Both companies are rated A+15 (highest rating) by A.M. Best. Sources of Revenues - ------------------- A breakdown of the amount and percentage of revenues from each principal source for the periods indicated follows: For the Years Ended - -------------------------------------------------------------------------------- December 31, December 31, September 29, September 30, 1996 1995 1995 1994 (three-months) - -------------------------------------------------------------------------------- Amount Percent Amount Percent Amount Percent Amount Percent - -------------------------------------------------------------------------------- (In thousands of dollars) Securities commissions: Listed $ 20,507 12.2% $ 5,128 13.7% $ 17,852 14.5% $ 14,201 13.2% Over-the-counter 7,749 4.6 1,402 3.7 4,395 3.6 3,588 3.3 Options 1,894 1.1 382 1.0 1,240 1.0 911 0.8 Mutual funds 12,258 7.3 2,712 7.3 8,228 6.7 10,586 9.8 Other 303 0.2 15 0.1 174 0.1 267 0.3 - -------------------------------------------------------------------------------- Sub-total 42,711 25.4 9,639 25.8 31,889 25.9 29,553 27.4 Principal trans- actions 63,438 37.7 12,322 32.9 43,198 35.1 36,167 33.6 Investment banking 19,558 11.6 5,435 14.5 14,625 11.9 19,164 17.8 Clearing revenues 1,100 0.7 267 0.7 1,059 0.8 1,151 1.1 Fees and other 9,144 5.4 1,603 4.3 6,155 5.0 5,427 5.0 - -------------------------------------------------------------------------------- Total operating revenues 135,951 80.8 29,266 78.2 96,926 78.7 91,462 84.9 - -------------------------------------------------------------------------------- Interest income 32,240 19.2 8,138 21.8 26,173 21.3 16,222 15.1 - -------------------------------------------------------------------------------- Total revenues $168,191 100.0%$ 37,404 100.0% $123,099 100.0% $107,684 100.0% ================================================================================
In July 1996, the Company changed its fiscal year end to a calendar year end. Accordingly, results from operations for the period ending December 31, 1996 reflect a twelve-month period ("calendar year") while results for the transitional period ending December 31, 1995 reflect a three-month period. Securities Commissions - ---------------------- In executing customers' orders to buy or sell listed securities and securities in which it does not make a market, First Albany generally acts as an agent and charges a commission. Principal Transactions - ---------------------- First Albany buys and maintains inventories of municipal debt, corporate debt, and equity securities as a "market maker" for sale of those securities to other dealers and to customers. A staff of 53 traders, underwriters, and assistants manages First Albany's inventory of securities. First Albany Investment Executives work directly with these traders. As of December 31, 1996, First Albany made a market in 175 common stocks quoted on National Association of Securities Dealers Automated Quotation ("NASDAQ") and other less actively traded securities. First Albany also trades municipal bonds and taxable debt obligations, including U.S. Treasury bills, notes, and bonds; U.S. Government agency notes and bonds; bank certificates of deposit; mortgage-backed securities; and corporate obligations. Principal transactions have been a significant source of revenue and should continue to be so in the future. Continuation of these activities depends on the availability of sufficient capital and the services of highly skilled traders, Investment Executives, and Institutional Salespeople. In fiscal 1995, First Albany added an institutional municipal risk trading operation, in which certain inventory positions are hedged by highly liquid future contracts. Most of the inventory positions are carried for the purpose of generating sales by the retail and institutional salesforce. First Albany's trading activities require the commitment of capital and may place First Albany's capital at risk. Profits and losses are dependent upon the skill of traders, price movement, trading activity, and the size of inventories. In executing customers' orders to buy or sell in the over-the-counter market in a security in which it makes a market, First Albany may sell to or purchase from its customers at a price which is substantially equal to the current inter-dealer market price, plus or minus a markup or markdown. Alternatively, First Albany may act as an agent, executing a customer's purchase or sale order with another broker-dealer, who acts as a market maker, at the best inter-dealer market price available and charging a commission. The following table sets forth the highest, lowest, and average month-end inventories (including the net of securities owned and securities sold, but not yet purchased) for calendar 1996 by securities category where First Albany acted as principal. Highest Lowest Average (In thousands of dollars) Inventory Inventory Inventory - -------------------------------------------------------------------------------- State and municipal bonds $137,223 $41,726 $82,393 Corporate obligations 21,075 5,974 10,941 Corporate stocks 4,988 2,171 3,304 U.S. Government and federal agencies obligations 10,072 3,072 6,323
Underwriting and Investment Banking - ----------------------------------- First Albany manages, co-manages, and participates in tax-exempt and corporate securities distributions. For the periods indicated, the table below highlights the number and dollar amount of corporate and tax-exempt securities offerings managed or co-managed by First Albany and the number and amount of First Albany's underwriting participations in syndicates, including those managed or co-managed by First Albany:
Corporate Stock and Bond Offerings Managed or Co-Managed Syndicate Participations - -------------------------------------------------------------------------------- Year Number of Amount of Number of Amount of Ended Issues Offering Participations Participation - -------------------------------------------------------------------------------- (In thousands of dollars) December 1996 9 $ 348,292 177 $ 218,452 December 1995 (three-months) 2 86,828 74 73,303 September 1995 13 514,583 203 227,170 September 1994 13 483,814 334 349,723 September 1993 3 158,300 344 366,314 September 1992 4 212,451 322 130,938
Tax-Exempt Bond Offerings Managed or Co-Managed Syndicate Participations - -------------------------------------------------------------------------------- Year Number of Dollar Number of Dollar Ended Issues Amount Participations Amount - -------------------------------------------------------------------------------- (In thousands of dollars) December 1996 267 $ 19,291,904 302 $ 3,226,226 December 1995 (three-months) 47 6,322,205 59 522,292 September 1995 113 12,235,469 222 1,362,845 September 1994 123 14,744,502 332 1,598,182 September 1993 171 18,379,821 349 1,741,206 September 1992 179 14,482,448 328 1,137,423
Participation in an underwriting syndicate or selling group involves both economic and regulatory risks. An underwriter or selling group member may incur losses if it is forced to resell the securities it is committed to purchase at less than the agreed-upon purchase price. In addition, under the federal securities laws, other statutes, and court decisions with respect to underwriters' liabilities and limitations on indemnification of underwriters by issuers, an underwriter is subject to substantial potential liability for material misstatements or omissions in prospectuses and other communications with respect to underwritten offerings. Further, underwriting or selling commitments constitute a charge against net capital and First Albany's underwriting or selling commitments may be limited by the requirements that it must at all times be in compliance with the net capital rule. See "Net Capital Requirements". Interest - -------- First Albany derives interest income primarily from the financing of customer margin loans, securities lending activities, and securities owned. Customers' securities transactions are effected on either a cash or margin basis. In margin transactions, First Albany extends credit, which is collateralized by securities and cash in the customer's account, to the customer. In accordance with Federal Reserve Bank regulations, NYSE regulations, and internal policy, First Albany earns interest income as a result of charging customers at a rate of up to 2% over the brokers' call rate. During the past several years, cash balances in customers' accounts have been a source of funds to finance customers' margin account debit balances. SEC regulations restrict the use of customers' funds by broker-dealers by providing generally that free credit balances and funds derived from pledging and lending customers' securities are to be used only to finance customers' margin account debit balances, and, to the extent not so used, the funds must be deposited in a special reserve bank account for the exclusive benefit of customers. The regulations also require broker- dealers, within designated periods of time, to obtain physical possession or control of, and to segregate, customers' fully paid and excess margin securities. In the ordinary course of both its trading and brokerage activities, First Albany borrows securities to cover short sales and to complete transactions in which customers or other brokers have failed to deliver securities by the required settlement date. First Albany also lends securities to other brokers and dealers for similar purposes. When borrowing securities, First Albany is required to deposit cash or other collateral, or to post a letter of credit with the lender and receive a rebate (based on the amount of cash deposited) calculated to yield a negotiated rate of return. When lending securities, First Albany receives cash and generally pays a rebate (based on the amount of cash received) to the other party to the transaction. Securities borrow and loan transactions are executed pursuant to written agreements with counter-parties which provide that the securities borrowed or loaned be marked to market on a daily basis and that excess collateral be refunded or that additional collateral be furnished in the event of changes in the market value of the securities. Collateral adjustments are usually made on a daily basis through the facilities of various clearinghouses. Operations, Clearing, and Systems - --------------------------------- First Albany's operations include: execution of orders; processing of transactions; receipt, identification, and delivery of funds and securities; custody of customers' securities; internal financial control; and compliance with regulatory and legal requirements. The volume of transactions handled by the operations staff fluctuates substantially. The monthly number of purchase and sale transactions processed for the periods indicated were as follows:
Number of Monthly Transactions ---------------------------- Year Ended High Low Average -------------- December 1996 96,033 62,694 72,473 December 1995 (three months) 77,275 57,918 64,538 September 1995 71,407 44,409 54,254 September 1994 58,245 40,537 47,257 September 1993 51,745 37,276 43,409 September 1992 43,068 30,907 36,346
First Albany has established internal controls and safeguards against securities theft, including use of depositories and periodic securities counts. As required by the NYSE and certain other authorities, First Albany carries fidelity bonds covering loss or theft of securities as well as embezzlement and forgery. First Albany clears its own securities transactions and posts its books and records daily. Periodic reviews of controls are conducted, and administrative and operations personnel meet frequently with management to review operating conditions. Operations, compliance, and legal personnel monitor compliance with applicable laws, rules, and regulations. In addition to processing its own customer transactions, First Albany processes, for a fee, the transactions of other brokerage firms whose customer accounts are carried on a fully disclosed basis with all security positions, margin accounts receivable, and credit balances reflected on the books and records of First Albany. Financial Services - ------------------ Customized financial services are available to customers of First Albany. The Financial Planning Department advises customers on a variety of interrelated financial matters, including investment portfolio review, tax management, insurance analysis, education and retirement planning, and estate analysis. For a fee, financial planners will prepare a detailed analysis with specific recommendations aimed at accumulating wealth and attaining financial goals. First Albany also offers a range of retirement plans, including IRAs, SEP Plans, profit sharing, 401(k), and pension programs. Fixed and variable annuities are available as well as life, disability, and nursing home insurance programs, limited partnership interests in real estate, oil and gas drilling, and similar ventures. Research - -------- First Albany maintains a professional staff of equity analysts. Research is focused on six industry sectors: technology, health care, financial services, energy, utilities, and basic industry. First Albany employs 13 analysts and 15 research assistants who support First Albany's institutional and retail brokerage and corporate finance activities. In fiscal 1995, First Albany enlarged the scope of its research in the technology sector by entering into a strategic alliance with the META Group, Inc. ("META"). META, an independent market assessment company, provides research and analysis of developments and trends in information technology ("IT"), including computer hardware, software, communications and related information technology industries to both IT users and IT vendors. The alliance with META enables First Albany to provide its investors with insights drawn from META's analysis of technology trends, user experience, and vendor pricing and negotiating tactics. Research services include review and analysis of the economy; general market conditions; technology trends, industries and specific companies via both fundamental and technical analyses; recommendations of specific action with regard to industries and specific companies; review of customer portfolios; preparation of research reports which are provided to retail and institutional customers; and responses to inquiries from customers and Investment Executives. In addition, First Albany purchases outside research services including economic reports, charts, data bases, company analyses, and technical analyses. Retail Business - --------------- Revenues from First Albany's retail brokerage activities are generated through customer purchases and sales of stocks, bonds, mutual funds, and other investment products. For the calendar year ended December 31, 1996, the three month period ended December 31, 1995 and fiscal years 1995, and 1994, these revenues accounted for approximately 45%, 49%, 53%, and 54% of operating revenues, respectively. Institutional Business - ---------------------- Revenues generated from securities transactions with major institutions for the calendar year ended December 31, 1996, the three month period ended December 31, 1995 and fiscal years 1995, and 1994, accounted for approximately 34%, 36%, 31%, and 29% of operating revenues, respectively. Institutional revenues are derived from sales of tax-exempt securities, taxable debt obligations, and equities and are generated by 83 Institutional Salespeople. Municipal Bond Business - ----------------------- The tax-exempt department consists of 70 professionals and offers a broad range of services, including primary market underwriting, secondary market trading, institutional sales, sales liaison with branches, portfolio analysis, credit analysis, investment banking services, and financial advisory services. Sales revenues from all secondary market tax-exempt products were $15.0 million for the calendar year ended December 31, 1996; $3.2 million for the three-month period ended December 31, 1995; $12.9 million in fiscal 1995; and $9.0 million in fiscal 1994. Employees - --------- At December 31, 1996, the Company had 769 full-time employees, of which 221 were Retail Investment Executives, 112 were Institutional Salespeople and Institutional Traders, 137 were in branch sales support, 145 were in other revenue producing positions, 78 were in operations, and 76 were in other support and administrative functions. New Investment Executives are required to take examinations given by the NASD and approved by the NYSE and all principal exchanges as well as state securities authorities in order to be registered. There is intense competition among securities firms for Investment Executives with proven sales production records. The Company considers its employee relations to be good and believes that its compensation and employee benefits are competitive with those offered by other securities firms. None of the Company's employees are covered by a collective bargaining agreement. Competition - ----------- First Albany is engaged in a highly competitive business. Its competition includes, with respect to one or more aspects of its business, all of the member organizations of the NYSE and other registered securities exchanges, all members of the NASD, members of the various commodity exchanges, and commercial banks and thrift institutions. Many of these organizations are national firms and have substantially greater financial and human resources than First Albany. Discount brokerage firms seeking to expand their share of the retail market, including firms affiliated with commercial banks and thrift institutions, are devoting substantial funds to advertising and direct solicitation of customers. In many instances, First Albany is competing directly with such organizations. In addition, there is competition for investment funds from the real estate, insurance, banking, and savings and loan industries. The Company believes that the principal factors affecting competition for the securities industry are the quality and ability of professional personnel and relative prices of services and products offered. Regulation - ---------- The securities industry in the United States is subject to extensive regulation under federal and state laws. The SEC is the federal agency charged with administration of the federal securities laws. Much of the regulation of broker-dealers, however, has been delegated to self- regulatory organizations, principally the NASD and the national securities exchanges. These self-regulatory organizations adopt rules (subject to approval by the SEC) which govern the industry and conduct periodic examinations of member broker-dealers. Securities firms are also subject to regulation by state securities commissions in the states in which they are registered. First Albany is currently registered as a broker-dealer in 50 states and the District of Columbia. The regulations to which broker-dealers are subject cover all aspects of the securities business, including sales methods, trade practices among broker-dealers, capital structure of securities firms, recordkeeping, and conduct of directors, officers, and employees. Additional legislation, changes in rules promulgated by the SEC and by self-regulatory organizations, or changes in the interpretation or enforcement of existing laws and rules often directly affect the method of operation and profitability of broker-dealers. The SEC, self-regulatory organizations, and state security regulators may conduct administrative proceedings which can result in censure, fine, suspension, or expulsion of a broker-dealer, its officers, or employees. The principal purpose of regulation and discipline of broker-dealers is the protection of customers and the securities markets rather than protection of creditors and stockholders of broker-dealers. Net Capital Requirements - ------------------------ As a broker-dealer and member of the NYSE, First Albany is subject to the Uniform Net Capital Rule promulgated by the SEC. The rule is designed to measure the general financial condition and liquidity of a broker-dealer, and it imposes a minimum amount of net capital requirement deemed necessary to meet the broker-dealer's continuing commitments to its customers. A broker-dealer may be required to reduce its business and to restrict withdrawal of subordinated capital if its net capital is less than 4% of aggregate debit balances; it may be prohibited from expanding its business and declaring cash dividends if its net capital is less than 5% of aggregate debit balances; and it will be subject to closer supervision by the NYSE if its net capital is less than 6% of aggregate debit balances. Compliance with the Net Capital Rule may limit those operations which require the use of its capital for purposes, such as maintaining the inventory required for a firm trading in securities, underwriting securities, and financing customer margin account balances. Net capital and aggregate debit balances change from day to day and, at December 31, 1996, First Albany's net capital was $16,478,000 which was 12% of its aggregate debit balances (2% minimum requirement) and $13,783,000 in excess of required minimum net capital. Item 2. Properties - ------------------- In February 1997, the Company has a total of 25 Retail, Institutional, and Investment Banking offices in 8 states, all of which are leased or rented. The Company's executive offices are located at 30 South Pearl Street, Albany, New York. The order entry, trading, investment banking, research, data processing, operations, and accounting activities are centralized in this Albany office. The offices at 30 South Pearl Street are operated under a lease which currently expires in the year 2002. All other offices are subject to lease or rental agreements that expire at various times through March 2008. These leases, in the opinion of management, are sufficient to meet the needs of the Company. A list of locations are as follows: Albany, NY Garden City, NY Norwich, NY 30 South Pearl St. Retail Sales Retail Sales Retail & Institutional Sales, Investment Banking, DP, Research Hartford, CT Oneonta, NY Back Office Retail & Institutional Sales Retail Sales 80 State St. Johnstown, NY Philadelphia, PA Retail Sales Retail Sales Institutional Sales Bonita Springs, FL Manchester, NH Pittsfield, MA Institutional Sales Retail Sales Retail Sales Boston, MA Morristown, NJ Sewickley, PA Retail & Institutional Sales Institutional Sales Institutional Investment Banking, DP, Research Sales Buffalo, NY Nashua, NH Syracuse, NY Retail Sales Retail Sales Retail Sales Colchester, VT New York, NY Vestal, NY Retail Sales One Penn Plaza Retail Sales Retail & Institutional Sales Elmira, NY Investment Banking, DP, Research Retail Sales Back Office Fairfield, CT 17 State. St. Wellesley, MA Retail Sales Retail Sales 40 Grove St. Operations Institutional Sales 330 Washington St. Retail Sales Item 3. Legal Proceedings - -------------------------- In the normal course of business, the Company has been named a defendant, or otherwise has possible exposure, in several claims. Certain of these are class actions which seek unspecified damages that could be substantial. Although there can be no assurance as to the eventual outcome of litigation in which the Company has been named as a defendant or otherwise has possible exposure, the Company has provided for those actions it believes are likely to result in adverse dispositions. Although further losses are possible, the opinion of management, based upon the advice of its attorneys and general counsel, is that such litigation will not, in the aggregate, have a material adverse effect on the Company's liquidity or financial position, although it could have a material effect on quarterly or annual operating results in the period in which it is resolved. Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------- None. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters - -------------------------------------------------------------------------- The Company's common stock trades on the NASDAQ Stock Market under the symbol "FACT". As of March 14, 1997 there were approximately 850 holders of record of the Company's common stock. The following table sets forth the high and low bid quotations for the common stock as adjusted for subsequent stock dividends, along with cash dividends during each quarter for the fiscal years ended: December 31, 1996 Quarters Ended - -------------------------------------------------------------------------------- Stock Price Range Mar. 29 June 28 Sept. 27 Dec. 31 - -------------------------------------------------------------------------------- High $10 1/8 $10 3/8 $10 3/8 $10 3/4 Low $ 9 $ 9 $ 9 $ 8 5/8 Cash Dividend per Share $0.05 $0.05 $0.05 $0.05
December 31, 1995 Three-month period - -------------------------------------------------------------------------------- Stock Price Range Dec. 31 - -------------------------------------------------------------------------------- High $ 9 1/2 Low $ 7 1/8 Cash Dividend per Share $ 0.05
September 29, 1995 Quarters Ended - -------------------------------------------------------------------------------- Stock Price Range Dec. 31 Mar. 31 June 30 Sept. 29 - -------------------------------------------------------------------------------- High $ 6 1/2 $ 6 7/8 $ 7 1/4 $ 7 3/8 Low $ 5 3/4 $ 5 7/8 $ 6 3/8 $ 6 3/8 Cash Dividend per Share $ .05 $ .05 $ .05 $ 0.05
The Board of Directors has from time to time authorized the Company to repurchase shares of its common stock either in the open market or otherwise. As of December 31, 1996, the total number of treasury shares was 311,809. When appropriate, the Company will consider making additional purchases. During calendar 1996, the Company declared and paid four quarterly cash dividends totaling $.20 per share of common stock, and declared and issued two 5% common stock dividends. In January 1997, subsequent to the period reflected in this report, the Company declared the regular quarterly cash dividend of $0.05 per share payable on February 25, 1997 to shareholders of record on February 11, 1997. Item 6. Selected Financial Data - -------------------------------- The following selected financial data have been derived from the Consolidated Financial Statements of the Company. First Albany Companies Inc. FIVE YEAR FINANCIAL SUMMARY (In thousands of dollars except per share amounts) For the Years Ended Dec. 31, Dec. 31, Sept. 29, Sept. 30, Sept.24, Sept. 25, For the years ended 1996 1995 1995 1994 1993 1992 - -------------------------------------------------------------------------------- Operating Results Revenues: Commissions $ 42,711 $ 34,941 $ 31,889 $ 29,553 $ 28,884 $ 24,569 Principal trans- actions 63,438 44,821 43,198 36,167 34,857 31,405 Investment banking 19,558 16,311 14,625 19,164 23,265 16,065 Fees and other 10,244 7,530 7,214 6,578 5,901 4,782 - -------------------------------------------------------------------------------- Operating revenues 135,951 103,603 96,926 91,462 92,907 76,821 Interest income 32,240 28,075 26,173 16,222 9,483 8,999 - -------------------------------------------------------------------------------- Total revenues 168,191 131,678 123,099 107,684 102,390 85,820 Interest expense 26,030 21,985 19,904 10,467 5,257 5,078 - -------------------------------------------------------------------------------- Net revenues 142,161 109,693 103,195 97,217 97,133 80,742 - -------------------------------------------------------------------------------- Expenses (excluding interest): Compensation and benefits 95,691 74,596 71,064 65,513 64,388 51,558 Clearing, settlement and brokerage costs 2,868 2,378 2,258 1,894 1,981 1,978 Communications and data processing 10,897 8,244 7,794 7,198 6,209 5,213 Occupancy and depreciation 8,527 6,909 6,660 5,710 5,395 5,130 Selling 7,246 5,231 4,817 4,779 4,152 3,410 Other 7,840 5,912 5,382 4,755 6,242 4,534 - -------------------------------------------------------------------------------- Total expenses (excl. interest) 133,069 103,270 97,975 89,849 88,367 71,823 - -------------------------------------------------------------------------------- Income before income taxes 9,092 6,423 5,220 7,368 8,766 8,919 Income tax expense 3,592 2,363 1,870 2,876 3,375 3,352 - -------------------------------------------------------------------------------- Net income $ 5,500 $ 4,060 $ 3,350 $ 4,492 $ 5,391 $ 5,567 ================================================================================ Per Common Share: * Earnings-primary $ 1.02 $ 0.77 $ 0.65 $ 0.87 $ 1.03 $ 1.10 Cash dividend 0.20 0.20 0.20 0.20 0.20 0.20 Book value 8.32 7.52 7.26 6.79 6.06 5.12 - -------------------------------------------------------------------------------- Financial Condition: Total assets $675,785 $510,081 $543,255 $482,749 $514,794 $203,877 Notes payable 4,583 1,641 1,791 94 456 1,334 Obligations under capitalized leases 1,426 Subordinated debt 5,000 2,250 2,750 Stockholders' equity 42,274 37,558 36,192 33,230 30,088 25,272 - --------------------------------------------------------------------------------
*All per share figures have been restated for common stock dividends paid. FIRST ALBANY COMPANIES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS Item 7. Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------ Results of Operations. - ---------------------- BUSINESS ENVIRONMENT First Albany Corporation (First Albany), a wholly owned subsidiary of First Albany Companies Inc. (the Company), is a full service investment banking and brokerage firm. Its primary business includes the underwriting, distribution, and trading of fixed income and equity securities. The investment banking and brokerage businesses earn revenues in direct correlation with the general level of trading activity in the stock and bond markets. This level of activity cannot be controlled by the Company; however, many of the Company's costs are fixed. Therefore, the Company's earnings, like those of others in the industry, reflect the activity in the markets and can fluctuate accordingly. In July 1996, the Company changed its fiscal year end to a calendar year end. Accordingly, results from operations for the period ending December 31, 1996 reflect a twelve-month period ("calendar year") while results for the transitional period ending December 31, 1995 reflect a three-month period. This is a highly competitive business. The competition includes not only full service national firms and discount houses, but also mutual funds that sell directly to the customer as well as banks that offer a variety of investment products. 1996 was an unusually good year for the equity markets in general and many securities firms in particular. The bond markets did not fare as well as long-term interest rates rose as the economy recovered from the growth recession of 1995. The yield on long-term U.S. Treasury bonds rose from 5.99% to 6.72% while the Dow Jones Industrial Average rose from 5117 to 6448. As a result, stock prices registered a total return of 22.8% as measured by the S&P 500, and bonds registered a return of 2.9% as measured by the Lehman Brothers Government/Corporate Index. The stock market return was unusual. The compound annual returns with all the dividends and interest reinvested between 1926 and 1995 for corporate bonds was 5.7%, for government bonds 5.2%, and for equities 10.5%. Although First Albany remains optimistic about the outlook for equity prices in 1997, a pullback in prices could occur. If such a pullback should occur, it would have a damaging effect on the secondary markets. Revenues from security trading, commission revenues, and underwriting fees and profits of First Albany Corporation would most likely suffer. In such an environment, it would be difficult for all securities firms to maintain growth and earnings comparable to the levels achieved in 1996. RESULTS OF OPERATIONS FIRST ALBANY COMPANIES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.) 1996 vs. Twelve Months Ended 1995 Percentage December 31, December 31, Increase Increase (In thousands of dollars) 1996 1995 (Decrease) (Decrease) Revenues: Commissions $ 42,711 $ 34,941 $ 7,770 22% Principal transactions 63,438 44,821 18,617 42% Investment banking 19,558 16,311 3,247 20% Fees and others 10,244 7,530 2,714 36% - -------------------------------------------------------------------------------- Operating revenues 135,951 103,603 32,348 31% Interest income 32,240 28,075 4,165 15% - -------------------------------------------------------------------------------- Total Revenues 168,191 131,678 36,513 28% Interest expense 26,030 21,985 4,045 18% - -------------------------------------------------------------------------------- Net revenues 142,161 109,693 32,468 30% - -------------------------------------------------------------------------------- Expenses (excluding interest): Compensation and benefits 95,691 74,596 21,095 28% Clearing, settlement and brokerage cost 2,868 2,378 490 21% Communications and data processing 10,897 8,244 2,653 32% Occupancy and depreciation 8,527 6,909 1,618 23% Selling 7,246 5,231 2,015 39% Other 7,840 5,912 1,928 33% - -------------------------------------------------------------------------------- Total expenses (excluding interest) 133,069 103,270 29,799 29% - -------------------------------------------------------------------------------- Income before income taxes 9,092 6,423 2,669 42% Income tax expense 3,592 2,363 1,229 52% - -------------------------------------------------------------------------------- Net income $ 5,500 $ 4,060 $ 1,440 35% ================================================================================ Net interest income Interest income $ 32,240 $ 28,075 $ 4,165 15% Interest expense 26,030 21,985 4,045 18% - -------------------------------------------------------------------------------- Net interest income $ 6,210 $ 6,090 $ 120 2% ================================================================================
FIRST ALBANY COMPANIES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.) Calendar Year 1996 Compared with Calendar Year 1995 Net Income - ---------- Net income for the calendar year ended December 31, 1996 was $5.5 million or $1.02 per share compared to $4.1 million or $0.77 per share a year ago. This year's revenue gain reflects significant increases in both the firm's institutional and retail divisions. Net revenues increased over 60% for our equity capital markets division and over 50% for our fixed income capital markets division, while revenues in the retail division increased nearly 25%. In the second half of 1996, continued strong revenues were offset in part by our investments in people and systems. Management anticipates that this pressure on margins will continue for the first half of 1997. Commissions - ----------- Commission revenues increased $7.8 million or 22% in calendar 1996 reflecting active trading in all major markets. Revenues from listed stocks and over-the-counter agency stock commissions increased $4.5 million or 19% with mutual fund commission revenues increasing $3.1 million or 33%. Principal Transactions - ---------------------- Principal transactions increased $18.6 million or 42% in calendar 1996. This growth was comprised of an increase in equity securities of $10.3 million, an increase in municipal bonds of $0.7 million, an increase in taxable fixed income of $5.9 million and an increase in investment income of $1.7 million, primarily from META Group, Inc. Investment Banking - ------------------ Investment banking revenues increased $3.2 million or 20% in calendar 1996. Revenues from selling concessions were up $0.7 million (municipals increased $1.6 million, equities decreased $0.8 million and taxable fixed income decreased $0.1 million), underwriting fees increased $0.5 million (primarily equities), and investment banking fees increased $2.0 million (municipal finance fees increased $1.5 million while corporate finance fees increased $0.5 million). Fees and Others - --------------- Fees and other revenues increased $2.7 million or 36% in calendar 1996 primarily reflecting increased service charge income and financial service revenues. Compensation and Benefits - ------------------------- Compensation and benefits increased $21.1 million or 28% in calendar 1996 due primarily to the increase in revenues. Sales-related compensation increased $17.8 million, salaries increased $2.7 million, and benefits increased $0.6 million. Communications and Data Processing - ---------------------------------- Communications and data processing increased $2.7 million or 32% in calendar 1996. Communications expense increased $2.2 million due mainly to the firm's continued commitment to upgrading technology, its increase in personnel and the growth of its business related activity. Data processing expense increased $0.5 million due in most part to a greater number of transactions. FIRST ALBANY COMPANIES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.) Occupancy and Depreciation - -------------------------- Occupancy and depreciation expense increased $1.6 million or 23% in fiscal 1996 primarily as a result of our continuing investment in new automated systems. Selling - ------- Selling expense increased $2.0 million or 39% in fiscal 1996 mainly reflecting greater promotional- related expenses resulting from increased retail and institutional activity. Other - ----- Other expense increased $1.9 million or 33% in fiscal 1996 due to an increase in consulting costs and expenses related to an upgrade in our customer statement. FIRST ALBANY COMPANIES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.) 1995 vs. Three Months Ended 1994 Percentage December 31, December 31, Increase Increase (In thousands of dollars) 1995 1994 (Decrease) (Decrease) - -------------------------------------------------------------------------------- Revenues: Commissions $ 9,639 $ 6,587 $ 3,052 46% Principal transactions 12,322 10,699 1,623 15% Investment banking 5,435 3,749 1,686 45% Fees and others 1,870 1,553 317 20% - -------------------------------------------------------------------------------- Operating revenues 29,266 22,588 6,678 30% Interest income 8,138 6,237 1,901 30% - -------------------------------------------------------------------------------- Total Revenues 37,404 28,825 8,579 30% Interest expense 6,631 4,551 2,080 46% - -------------------------------------------------------------------------------- Net revenues 30,773 24,274 6,499 27% - -------------------------------------------------------------------------------- Expenses (excluding interest): Compensation and benefits 20,433 16,900 3,533 21% Clearing, settlement and brokerage cost 613 493 120 24% Communications and data processing 2,264 1,814 450 25% Occupancy and depreciation 1,842 1,593 249 16% Selling 1,563 1,149 414 36% Other 1,576 1,046 530 51% - -------------------------------------------------------------------------------- Total expenses (excluding interest) 28,291 22,995 5,296 23% - -------------------------------------------------------------------------------- Income before income taxes 2,482 1,279 1,203 94% Income tax expense 929 436 493 113% - -------------------------------------------------------------------------------- Net income $ 1,553 $ 843 $ 710 84% ================================================================================ Net interest income Interest income $ 8,138 $ 6,237 $ 1,901 30% Interest expense 6,631 4,551 2,080 46% - -------------------------------------------------------------------------------- Net interest income $ 1,507 $ 1,686 $ (179) (11)% ================================================================================
FIRST ALBANY COMPANIES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.) Three Months Periods Ended December 31, 1995 and December 31, 1994 Net Income - ---------- Net income for the quarter ended December 31, 1995, was $1.6 million or $0.29 per share compared to $0.8 million or $0.18 per share a year ago. Most of the firm's business units showed significant revenue gains in the three month period ending December 31, 1995 compared to the three month period ending December 31, 1994. Revenues in both the equity capital markets and municipal divisions increased over 50%, while revenues in the retail division were up almost 20%. Commissions - ----------- Commission revenues increased $3.1 million or 46% in the three month period ending December 31, 1995 reflecting active trading in all major markets. Revenues from listed and over-the-counter agency stock commissions increased $2.0 million or 44% with mutual fund commission revenues increasing $1.0 million or 57%. Principal Transactions - ---------------------- Principal transactions increased $1.6 million or 15% in the three month period ending December 31, 1995. This growth was comprised of an increase in equity securities of $0.9 million, an increase in municipal bonds of $0.3 million and an increase in taxable fixed income of $0.4 million. Investment Banking - ------------------ Investment banking revenues increased $1.7 million or 45% in the three month period ending December 31, 1995. Revenues from selling concessions were up $1.0 million (equities increased $0.4 million, municipals increased $0.4 million and taxable fixed income increased $0.2 million), underwriting fees increased $0.6 million (primarily municipal bonds), and investment banking fees increased $0.1 million (municipal finance fees increased $0.3 million while corporate finance fees decreased $0.2 million). Fees and Others - --------------- Fees and other revenues increased $0.3 million or 20% reflecting increased service charge income and financial service revenues. Compensation and Benefits - ------------------------- Compensation and benefits increased $3.5 million or 21% due primarily to the increase in revenues. Sales-related compensation increased $2.4 million, salaries increased $0.9 million, and benefits increased $0.2 million. Communications and Data Processing - ---------------------------------- Communications and data processing increased $0.5 million or 25% in the three month period ending December 31, 1995. Communications expense increased $0.4 million due mainly to the firm's buildup in institutional equity sales and research. Data processing expense increased $0.1 million due primarily to a greater number of transactions. FIRST ALBANY COMPANIES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.) Selling - ------- Selling expense increased $0.4 million or 36% mainly reflecting higher promotional related costs resulting from institutional sales activity. Other - ----- Other expenses increased $0.5 million or 51% in the three month period ending December 31, 1995, partially due to an increase in consulting costs. FIRST ALBANY COMPANIES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.) 1995 vs. Twelve Months Ended 1994 Percentage September 29, September 30, Increase Increase (In thousands of dollars) 1995 1994 (Decrease) (Decrease) - -------------------------------------------------------------------------------- Revenues: Commissions $ 31,889 $ 29,553 $ 2,336 8% Principal transactions 43,198 36,167 7,031 19% Investment banking 14,625 19,164 (4,539) (24)% Fees and others 7,214 6,578 636 10% - -------------------------------------------------------------------------------- Operating Revenues 96,926 91,462 5,464 6% Interest income 26,173 16,222 9,951 61% - -------------------------------------------------------------------------------- Total Revenues 123,099 107,684 15,415 14% Interest expense 19,904 10,467 9,437 90% - -------------------------------------------------------------------------------- Net revenues 103,195 97,217 5,978 6% - -------------------------------------------------------------------------------- Expenses (excluding interest): Compensation and benefits 71,064 65,513 5,551 8% Clearing, settlement and brokerage cost 2,258 1,894 364 19% Communications and data processing 7,794 7,198 596 8% Occupancy and depreciation 6,660 5,710 950 17% Selling 4,817 4,779 38 1% Other 5,382 4,755 627 13% - -------------------------------------------------------------------------------- Total expenses (excluding interest) 97,975 89,849 8,126 9% - -------------------------------------------------------------------------------- Income before income taxes 5,220 7,368 (2,148) (29)% Income tax expense 1,870 2,876 (1,006) (35)% - -------------------------------------------------------------------------------- Net income $ 3,350 $ 4,492 $ (1,142) (25)% ================================================================================ Net interest income Interest income $ 26,173 $ 16,222 $ 9,951 61% Interest expense 19,904 10,467 9,437 90% - -------------------------------------------------------------------------------- Net interest income $ 6,269 $ 5,755 $ 514 9% ================================================================================
FIRST ALBANY COMPANIES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.) Fiscal Year 1995 Compared with Fiscal Year 1994 Net Income - ---------- Net income for the 1995 fiscal year was $3.4 million or $0.65 per share compared to $4.5 million or $0.87 per share earned in fiscal 1994. During fiscal 1995, both the Company's municipal and equity institutional businesses showed substantial growth, along with an ongoing solid contribution by the retail division. The Company continued to make investments in people and technology, which have negatively impacted short- term operating results. Commissions - ----------- Commission revenues increased $2.3 million or 8% in fiscal 1995, reflecting active trading in institutional equities. Revenues from listed and over-the-counter stock commissions increased $4.6 million or 25%, while mutual fund commission revenues decreased $2.3 million or 22%. Principal Transactions - ---------------------- Principal transactions increased $7.0 million or 19% in fiscal 1995. This growth was comprised of an increase in equities of $2.1 million, an increase in municipal bonds of $7.8 million (primarily due to the addition in fiscal 1995 of an institutional municipal risk trading operation), a decrease in taxable fixed income securities of $2.1 million, and a decrease in investment income of $0.8 million. A primary reason for the decrease in investment income was the result of an unrealized gain of $1.4 million recorded in fiscal 1994 due to the Company's investment in a firm which completed an initial public offering in February 1994. Investment Banking - ------------------ Investment banking revenues decreased $4.5 million or 24% in fiscal 1995. Revenues from selling concessions decreased $3.4 million (equities decreased $2.4 million, while municipal bonds decreased $1.2 million and taxable fixed income increased $0.2 million), underwriting fees decreased $0.2 million, and investment banking fees decreased $0.9 million (corporate finance fees decreased $0.1 million, while municipal finance fees decreased $0.8 million). The drop in investment banking revenues was largely a result of an industry-wide decline in underwriting activity. Compensation and Benefits - ------------------------- Compensation and benefits increased $5.6 million or 8% in fiscal 1995. Sales-related compensation was $0.9 million higher and salaries increased $3.8 million causing benefits to rise $0.9 million. Occupancy and Depreciation - -------------------------- Occupancy and depreciation expense increased $1.0 million or 17% in fiscal 1995 primarily due to the firm's increased investment in new automated systems. Income Taxes - ------------ Income taxes decreased $1.0 million or 35% in fiscal 1995 due to a decrease in pre-tax earnings. The Company's effective tax rate decreased to 36% from 39% as a result of an increased proportion of tax-exempt interest income to income before taxes. FIRST ALBANY COMPANIES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.) LIQUIDITY AND CAPITAL RESOURCES A substantial portion of the Company's assets, similar to other brokerage and investment banking firms, is liquid, consisting of cash and assets readily convertible into cash. These assets are financed primarily by the Company's interest-bearing and non-interest-bearing payables to customers; payables to brokers and dealers collateralized by loaned securities; and bank lines-of-credit. Securities borrowed and securities loaned will fluctuate due primarily to the current level of business activity in this area. Net payables to others increased due primarily to the adjustment to record securities owned on a trade date basis. (Amounts receivable and payable for securities transactions that have not reached their contractual settlement are recorded net on the statement of financial condition.) Securities owned will fluctuate as a result of changes in the level of positions held to facilitate customer transactions and changes in market conditions. Net receivables from customers increased due to an increase in customer margin debits. Short-term bank loans increased due primarily to an increase in securities owned and an increase in net receivables from customers. At fiscal year-end 1996, First Albany Corporation and Northeast Brokerage Services Corporation, both registered broker-dealer subsidiaries of First Albany Companies Inc., were each in compliance with the net capital requirements of the Securities and Exchange Commission and had capital in excess of the minimum required. Management believes that funds provided by operations and a variety of committed and uncommitted bank lines-of-credit-totaling $200,000,000 of which approximately $65,288,000 were unused as of December 31, 1996-will provide sufficient resources to meet present and reasonably foreseeable short-term financial needs. During calendar 1996, the Company declared and paid four quarterly cash dividends totaling $0.20 per share of common stock, as well as declared and issued two 5% common stock dividends. During the transitional period ending December 31, 1995, the Company declared and paid a quarterly cash dividend of $0.05 per share along with a 5% common stock dividend. In January 1997, subsequent to the period reflected in this report, the Company declared the regular quarterly cash dividend of $0.05 per share payable on February 25, 1997, to shareholders of record on February 11, 1997. Management believes that funds provided by operations will be sufficient to fund the acquisition of office equipment, leasehold improvements, and other long-term requirements. Item 8. Financial Statements and Supplementary Data. - ----------------------------------------------------- Index to Financial Statements and Supplementary Data ---------------------------------------------------- Page ---- REPORT OF INDEPENDENT ACCOUNTANTS 23 FINANCIAL STATEMENTS: Consolidated Statements of Income For the Calendar Year Ended December 31, 1996; the three-month Transition Period ended December 31, 1995; the Fiscal Year Ended September 29, 1995, and the Fiscal Year Ended September 30, 1994 24 Consolidated Statements of Financial Condition as of December 31, 1996, December 31, 1995 (unaudited) and September 29, 1995 25 Consolidated Statements of Changes in Stockholders' Equity for the Calendar Year Ended December 31, 1996; the three-month Transition Period ended December 31, 1995, the Fiscal Year Ended September 29, 1995, and the Fiscal Year Ended September 30, 1994 26 Consolidated Statements of Cash Flows for the Calendar Year Ended December 31, 1996; the Three-month Transition Period ended December 31, 1995; the Fiscal Year Ended September 29, 1995, and the Fiscal Year Ended September 30, 1994 27 Notes to Consolidated Financial Statements 28-41 SUPPLEMENTARY DATA: Selected Quarterly Financial Data (Unaudited) 42 Report of Independent Accountants Board of Directors and Stockholders First Albany Companies Inc. We have audited the accompanying consolidated statements of financial condition of First Albany Companies Inc. as of December 31, 1996 and September 29, 1995 and the related statements of income, changes in stockholders' equity and cash flows for the year ended December 31, 1996, the three months ended December 31, 1995 and the years ended September 29, 1995 and September 30, 1994 as listed in Item 14(a) of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of First Albany Companies Inc. as of December 31, 1996, and September 29, 1995, and the consolidated results of their operations and their cash flows for the year ended December 31, 1996, the three months ended December 31, 1995, and for each of the years ended September 29, 1995 and September 30, 1994 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. As described in Note 1, the Company changed its fiscal year from the last Friday in September to a calendar year basis ending December 31. COOPERS & LYBRAND L.L.P. Albany, New York February 7, 1997 First Albany Companies Inc. CONSOLIDATED STATEMENTS OF INCOME (In thousands of dollars, except per share amounts) Three-Month Transition Period December 31, December 31, September 29, September 30, For the years ended 1996 1995 1995 1994 - -------------------------------------------------------------------------------- Revenues: Commissions $ 42,711 $ 9,639 $ 31,889 $ 29,553 Principal transactions 63,438 12,322 43,198 36,167 Investment banking 19,558 5,435 14,625 19,164 Interest 32,240 8,138 26,173 16,222 Fees and other 10,244 1,870 7,214 6,578 - -------------------------------------------------------------------------------- Total revenues 168,191 37,404 123,099 107,684 Interest expense 26,030 6,631 19,904 10,467 - -------------------------------------------------------------------------------- Net revenues 142,161 30,773 103,195 97,217 - -------------------------------------------------------------------------------- Expenses (excluding interest): Compensation and benefits 95,691 20,433 71,064 65,513 Clearing, settlement and brokerage costs 2,868 613 2,258 1,894 Communications and data processing 10,897 2,264 7,794 7,198 Occupancy and depreciation 8,527 1,842 6,660 5,710 Selling 7,246 1,563 4,817 4,779 Other 7,840 1,576 5,382 4,755 - -------------------------------------------------------------------------------- Total expenses (excluding interest) 133,069 28,291 97,975 89,849 - -------------------------------------------------------------------------------- Income before income taxes 9,092 2,482 5,220 7,368 Income tax expense 3,592 929 1,870 2,876 - -------------------------------------------------------------------------------- Net income $ 5,500 $ 1,553 $ 3,350 $ 4,492 ================================================================================ Net income per common and common equivalent share* Primary $ 1.02 $ 0.29 $ 0.65 $ 0.87 Fully diluted $ 1.02 $ 0.29 $ 0.64 $ 0.87 ================================================================================
*All per share figures have been restated to reflect the stock dividends paid. The accompanying notes are an integral part of the consolidated financial statements. First Albany Companies Inc. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands of dollars) December 31, December 31, September 29, 1996 1995 1995 (unaudited) - -------------------------------------------------------------------------------- Assets Cash $ 4,005 $ 5,450 $ 3,253 Cash segregated under federal regulations 1,300 Securities purchased under agreement to resell 2,869 Securities borrowed 344,904 283,785 376,919 Receivables from: Brokers, dealers and clearing agencies 1,856 7,231 1,889 Customers 128,130 99,759 88,610 Others 8,181 17,492 4,965 Securities owned 156,154 80,586 54,187 Investments 6,157 1,470 1,838 Office equipment and leasehold improvements, net 12,584 6,075 6,062 Other assets 10,945 6,933 5,532 - -------------------------------------------------------------------------------- Total Assets $675,785 $510,081 $543,255 ================================================================================ Liabilities and Stockholders' Equity Liabilities Short-term bank loans $134,712 $112,292 $ 53,288 Securities loaned 350,577 283,146 388,523 Payables to: Brokers, dealers and clearing agencies 3,150 3,281 3,104 Customers 48,174 48,274 38,335 Others 56,615 5,000 4,135 Securities sold but not yet purchased 10,075 4,407 3,892 Accounts payable 1,928 2,457 1,696 Accrued compensation 11,649 7,617 8,108 Accrued expenses 5,622 4,408 4,191 Notes payable 4,583 1,641 1,791 Obligations under capitalized leases 1,426 - -------------------------------------------------------------------------------- Total Liabilities 628,511 472,523 507,063 - -------------------------------------------------------------------------------- Commitments and Contingencies Subordinated debt 5,000 - -------------------------------------------------------------------------------- Stockholders' Equity Preferred stock; $1.00 par value; authorized 500,000 shares; none issued Common stock; $.01 par value; authorized 10,000,000 shares; issued 5,390,594; 4,889,747; and 4,889,747 respectively 54 49 49 Additional paid-in capital 25,591 20,257 20,257 Retained earnings 18,556 19,153 17,822 Less treasury stock at cost (1,927) (1,901) (1,936) - -------------------------------------------------------------------------------- Total Stockholders' Equity 42,274 37,558 36,192 - -------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $675,785 $510,081 $543,255 ================================================================================
The accompanying notes are an integral part of the consolidated financial statements. First Albany Companies Inc. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Periods Ended December 31, 1996, December 31, 1995, September 29, 1995, and September 30, 1994 (In thousands of dollars except for number of shares) Common Stock Additional Issued Paid-In Retained Treasury Stock Shares Amount Capital Earnings Shares Amount - -------------------------------------------------------------------------------- Balance September 24, 1993 4,023,421 $ 40 $13,142 $18,719 (320,786) $(1,813) Issuance of re- stricted stock 132 (104) 16,028 104 Stock dividends declared 412,033 4 3,215 (3,219) (37,973) Cash dividends paid (742) Options exercised (47) 64,281 379 Treasury stock purchase (130,000) (1,072) Net income 4,492 - -------------------------------------------------------------------------------- Balance September 30, 1994 4,435,454 44 16,489 19,099 (408,450) (2,402) Issuance of re- stricted stock 186 (155) 19,635 130 Stock dividends declared 454,293 5 3,582 (3,587) (35,175) Cash dividends paid (815) Options exercised (70) 58,251 336 Net income 3,350 - -------------------------------------------------------------------------------- Balance September 29, 1995 4,889,747 49 20,257 17,822 (365,739) (1,936) Cash dividends paid (217) Options exercised (5) 6,370 35 Net income 1,553 - -------------------------------------------------------------------------------- Balance December 31, 1995 4,889,747 49 20,257 19,153 (359,369) (1,901) Issuance of re- stricted stock 340 45 74,557 413 Stock dividends declared 500,847 5 4,994 (4,999) (38,768) Cash dividends paid (932) Options exercised (211) 136,276 806 Treasury stock purchase (124,505) (1,245) Net income 5,500 - -------------------------------------------------------------------------------- Balance December 31, 1996 5,390,594 $ 54 $25,591 $18,556 (311,809) $(1,927) ================================================================================
The accompanying notes are an integral part of the consolidated financial statements. First Albany Companies Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of dollars) Three Months Dec. 31, Dec. 31, Sept.29, Sept. 30, For the years ended 1996 1995 1995 1994 - -------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 5,500 $ 1,553 $ 3,350 $ 4,492 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 3,230 691 2,302 1,511 Deferred income taxes 146 587 (1,278) 658 Undistributed earnings of affiliate (555) Unrealized investment gains (2,343) (Increase) decrease in operating assets: Cash and securities segregated under federal regs. 1,300 (1,300) 250 Securities purchased under agreement to resell (2,869) 2,806 Securities borrowed, net (12,243) (1,641) Net receivables from brokers, dealers, and clearing agencies (5,165) Net receivable from customers (28,471) (1,210) (10,394) (12,364) Net receivable from others (11,662) 15,865 (16,584) Securities owned, net (69,900) (27,354) (33,031) 2,355 Other assets (4,158) (150) 1,283 (294) Increase (decrease) in operating liabilities: Securities sold under agreement to repurchase (2,825) Securities loaned, net 6,312 13,335 Net payables to brokers, dealers, and clearing agencies 5,244 (2,351) (1,997) Net payable to others 60,926 Accounts payable and accrued expenses 4,717 487 382 (2,158) - -------------------------------------------------------------------------------- Net cash used in operating activities (20,921) (55,766) (10,537) (25,791) - -------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of furniture, equipment, and leaseholds (8,288) (705) (3,213) (3,043) (Increase) decrease in investments (1,789) (1,838) - -------------------------------------------------------------------------------- Net cash used in investing activities (10,077) (705) (5,051) (3,043) - -------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds of short-term bank loans, net 22,420 59,004 14,367 28,990 Proceeds (payments) of subordinated debt 5,000 (2,250) Proceeds (payments) of notes payable 2,942 (150) 1,697 (362) Payments of obligations under capitalized leases (25) Payments for purchases of common stock for treasury (1,245) (1,072) Proceeds from issuance of common stock from treasury 595 31 266 332 Proceeds from issuance of restricted stock 798 161 132 Dividends paid (932) (217) (815) (742) - -------------------------------------------------------------------------------- Net cash provided by financing activities 29,553 58,668 15,676 25,028 - -------------------------------------------------------------------------------- Increase (decrease) in cash (1,445) 2,197 88 (3,806) Cash at beginning of the period 5,450 3,253 3,165 6,971 - -------------------------------------------------------------------------------- Cash at the end of the period $ 4,005 $ 5,450 $ 3,253 $ 3,165 ================================================================================ SUPPLEMENTAL CASH FLOW DISCLOSURES Income Tax Payments $ 3,410 $ 608 $ 1,753 $ 2,660 Interest Payments $25,404 $ 6,273 $18,989 $10,108
The accompanying notes are an integral part of the consolidated financial statements. First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Significant Accounting Policies Organization and Nature of Business - ----------------------------------- The consolidated financial statements include the accounts of First Albany Companies Inc. and its wholly owned subsidiaries (the "Company"). First Albany Corporation (the "Corporation") is the Company's principal subsidiary and a registered broker-dealer. The Corporation is registered with the Security and Exchange Commission ("SEC") and is a member of various exchanges and the National Association of Securities Dealers, Inc. The Corporation's primary business includes securities brokerage for individual and institutional customers, and market-making and trading of corporate, government, and municipal securities. In addition, the Corporation underwrites and distributes municipal and corporate securities, provides securities clearance activities for other brokerage firms, and offers financial advisory services to its customers. Another of the Company's subsidiaries is First Albany Asset Management Corporation ("Asset Management"). Under management agreements, Asset Management serves as investment manager to individual and institutional customers. Asset Management directs the investment of customer and mutual fund assets by making investment decisions, placing purchase and sales orders, and providing research, statistical analysis, and continuous supervision of the portfolios. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in affiliates which are not majority owned are reported using the equity method. In July 1996, the Company changed its fiscal year end to a calendar year end. Accordingly, results from operations for the period ending December 31, 1996 reflect a twelve-month period ("calendar year") while results for the transitional period ending December 31, 1995 reflect a three-month period. Previously, the Company's fiscal year end was the last Friday in September, and therefore, the Company's fiscal year would contain either a 52 or 53 week period. The fiscal years ended September 29, 1995 and September 30, 1994 contained 52 weeks and 53 weeks, respectively. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Securities Transactions - ----------------------- Proprietary securities transactions are recorded on trade date, as if they had settled. Profit and loss arising from all securities transactions entered for the account and risk of the Company are recorded on trade date. Customers' securities transactions are reported on a settlement date basis (normally the third business day following the transaction) with related commission income and expenses reported on a trade date basis. As a broker-dealer, the Corporation values marketable securities at market value and securities not readily marketable at fair value as determined by management. The resulting unrealized gains and losses are included as revenues from principal transactions. First Albany Companies Inc. also purchases securities for investment purposes and, as a non-broker- dealer, classifies them as trading securities and values them at market value, unless they are restricted, in which case they are valued at cost. First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Resale and Repurchase Agreements - -------------------------------- Transactions involving purchases of securities under agreements to resell or sales of securities under agreements to repurchase are treated as collateralized financing transactions and are recorded at their contracted resale or repurchase amounts plus accrued interest. It is the policy of the Company to obtain possession or control of collateral with a market value equal to or in excess of the principal amount loaned under resale agreements. Collateral is valued daily, and the Company may require counterparties to deposit additional collateral or return collateral pledged, when appropriate. At December 31, 1996, the Company had entered into a resale agreement in the amount of $2,869,000. Securities-Lending Activities - ----------------------------- Securities borrowed and securities loaned are recorded at the amount of cash collateral advanced or received. Securities borrowed transactions require the Company to deposit cash or other collateral with the lender. With respect to securities loaned, the Company receives collateral in the form of cash or other collateral in an amount generally in excess of the market value of securities loaned. The Company monitors the market value of securities borrowed and loaned on a daily basis, with additional collateral obtained or refunded as necessary. Office Equipment and Leasehold Improvements - ------------------------------------------- Office equipment and leasehold improvements are stated at cost less accumulated depreciation of $11,682,000 at December 31, 1996, $10,513,000 at December 31, 1995 (unaudited), and $9,834,000 at September 29, 1995. Depreciation is provided on a straight-line basis over the shorter of the estimated useful life of the asset or the term of the lease. Statement of Cash Flows - ----------------------- For purposes of the statement of cash flows, the Company considers amounts in demand deposit accounts at various financial institutions, other than those segregated under federal regulations, to be cash equivalents. Investment Banking - ------------------ Investment banking revenues include gains, losses, and fees, net of syndicate expenses, arising from securities offerings in which the Company acts as an underwriter or agent. Investment banking revenues also include fees earned from providing merger-and-acquisition and financial restructuring advisory services. Investment banking management fees are recorded on offering date, sales concessions on trade date, and underwriting fees at the time the underwriting is completed and the income is reasonably determinable. Income Taxes - ------------ The amount of current taxes payable is recognized as of the date of the financial statements, utilizing currently enacted tax laws and rates. Deferred income taxes are recognized for the future tax consequences of "temporary differences" which are attributable to differences between the financial statement and tax basis of existing assets and liabilities. First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Earnings per Common Share - ------------------------- Net income per common and common equivalent share have been computed based upon the weighted average number of common shares and dilutive common equivalent shares (stock options) outstanding. The weighted average number of common shares and dilutive common equivalent shares were: Three-month transition period December 31, December 31, September 29, September 30, 1996 1995 1995 1994 - -------------------------------------------------------------------------------- Primary 5,376,396 5,337,241 5,187,600 5,157,227 Fully diluted 5,376,396 5,405,337 5,222,654 5,157,227
All per share figures, as well as the weighted average number of common and dilutive common equivalent shares, have been restated for all stock dividends declared. Reclassifications - ----------------- Certain amounts in the financial statements have been reclassified to conform with the 1996 presentation. NOTE 2. Receivables From and Payables To Brokers, Dealers, and Clearing Agencies Amounts receivable from and payable to brokers, dealers, and clearing agencies, other than correspondents, as of: (In thousands of dollars) December 31, December 31, September 29, 1996 1995 1995 (unaudited) --------------------------------------------------------------------------- Securities failed to deliver $ 1,856 $ 3,893 $ 1,882 Receivable from clearing agencies 3,338 7 --------------------------------------------------------------------------- Total receivables $ 1,856 $ 7,231 $ 1,889 =========================================================================== Securities failed to receive $ 3,150 $ 3,281 $ 3,060 Payable to clearing agencies 44 --------------------------------------------------------------------------- Total payables $ 3,150 $ 3,281 $ 3,104 ===========================================================================
NOTE 3. Receivables From and Payables To Customers Receivables from and payables to customers include amounts due on cash and margin transactions. Securities owned by customers are held as collateral for receivables. Such collateral is not reflected in the financial statements. Total unsecured and partly secured customer receivables were $329,000, $307,000 and $125,000 as of December 31, 1996, December 31, 1995 (unaudited) and September 29, 1995, respectively. An allowance for doubtful accounts, based upon an aging of accounts receivable and specific identification, was recorded for $304,000, $219,000, and $125,000 as of December 31, 1996, December 31, 1995, (unaudited) and September 29, 1995, respectively. First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 4. Receivables From Others Amounts receivable from others as of: ================================================================================ (In thousands of dollars) December 31, December 31, September 29, 1996 1995 1995 (unaudited) - -------------------------------------------------------------------------------- Adjustment to record securities on a trade date basis, net $11,249 Others $ 8,181 6,243 $ 4,965 - -------------------------------------------------------------------------------- Total $ 8,181 $17,492 $ 4,965 ================================================================================
For proprietary securities transactions, amounts receivable and payable for securities transactions that have not reached their contractual settlement date are recorded net on the statement of financial condition. NOTE 5. Securities Owned And Sold, But Not Yet Purchased Securities owned and sold, but not yet purchased consisted of the following as of: ================================================================================ (In thousands of dollars) December 31, December 31, September 29, 1996 1995 1995 (unaudited) - -------------------------------------------------------------------------------- Sold, but Sold, but Sold, but not yet not yet not yet Owned Purchased Owned Purchased Owned Purchased - -------------------------------------------------------------------------------- Marketable U.S. government and federal agencies obligations $ 6,124 $ 2,923 $ 7,149 $ 1,191 $ 5,164 $ 1,045 State and municipal bonds 137,223 4,976 63,882 231 39,936 244 Corporate obligations 9,486 824 2,997 796 3,558 1,246 Corporate stocks 2,171 1,352 5,982 2,189 4,869 1,357 Options 1 20 100 Not readily marketable securities, fair value 1,149 556 560 - -------------------------------------------------------------------------------- $156,154 $10,075 $80,586 $ 4,407 $54,187 $ 3,892 ================================================================================
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 At year end 1996, the Company owned approximately 2,037,000 common shares (or 35% of the shares outstanding) of Mechanical Technology Incorporated (MTI), which operates in upstate New York. The Company's investment in MTI is recorded under the equity method and approximated $2,588,000, which included goodwill of approximately $922,000 which is being amortized. At December 31, 1996, the aggregate market value of the Company's shares of MTI stock was $4,074,000. First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Company's equity in MTI's net income, recorded on a one-quarter delay basis, was $555,000 during the year ended December 31, 1996, related primarily to a gain recorded from discontinued operations. At year end 1996, the Company owned 200,000 shares of META Group, Inc. This investment was carried at the value of $3,569,000 at December 31, 1996. Part of this investment is recorded at cost due to certain restrictions placed on the sale of these securities. The other portion of these securities became readily marketable pursuant to Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities", resulting in an unrealized gain of $2.3 million for the year ended December 31, 1996. The fair market value of this investment was $5,400,000 at December 31, 1996. NOTE 7. Bank Loans Short-term bank loans are made under a variety of committed and uncommitted bank lines of credit which are limited to financing securities eligible for collateralization under these arrangements. This includes Company owned securities and certain customer owned securities purchased on margin, subject to certain regulatory formulae. These loans bear interest at fluctuating rates based primarily on the Federal Funds interest rate. The average weighted interest rates on these loans were 6.8%, 5.7% and 7.5% at December 31, 1996, December 31, 1995, and September 29, 1995, respectively. Short-term bank loans and unused lines of credit were collateralized by Company owned securities of $100,244,000 and customers' margin account securities of $106,822,000 at December 31, 1996. A note for $4,583,333, which is collateralized by fixed assets, is payable in monthly principal payments of $114,583 and accrued interest. Interest is at the 90-day U.S. Treasury Securities rate (7.48% at December 31, 1996) plus 2.5%. The note matures April 1, 2000. Future annual principal loan repayment requirements as of December 31, 1996 are as follows: ========================================= (In thousands of dollars) ----------------------------------------- 1997 $1,375 1998 1,375 1999 1,375 2000 458 ----------------------------------------- Total $4,583 =========================================
NOTE 8. Obligations under Capitalized Leases In December, 1996, the Company entered into a capital lease for office equipment totaling approximately $1,451,000. First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following is a schedule of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of December 31, 1996: ----------------------------------------------- (In thousands of dollars) ----------------------------------------------- 1997 $ 333 1998 333 1999 335 2000 306 2001 380 2002 11 ----------------------------------------------- Total Minimum Lease Payments 1,698 Less: Amount Representing Interest 272 ----------------------------------------------- Present Value of Minimum Lease Payments $1,426 ===============================================
NOTE 9. Payables To Others Amounts payable to others as of: (In thousands of dollars) December 31, December 31, September 29, 1996 1995 1995 (unaudited) -------------------------------------------------------------------------- Adjustment to record securities on a trade date basis, net $ 39,401 $ 773 Others 17,214 $ 5,000 3,362 -------------------------------------------------------------------------- Total $ 56,615 $ 5,000 $ 4,135 ==========================================================================
For proprietary securities transactions, amounts receivable and payable for securities transactions that have not reached their contractual settlement date are recorded net on the statement of financial condition. NOTE 10. Subordinated Debt During 1996, the Company increased its subordinated debt by $5,000,000. This subordinated debt bears interest at 9.25%. Interest is paid monthly with the principal amount due at maturity on July 31, 2001. The loan agreement includes financial covenants for debt and equity. One of the more significant covenants requires First Albany Corporation to maintain a minimum net capital (as defined by Rule 15c 3-1 of the Securities and Exchange Commission) of $7,500,000. The amount of net capital as of December 31, 1996 was $16,478,000. The lender has the right to exercise stock options on 84,000 shares of the Company's stock at $11.90 per share. This right expires July 31, 2000. NOTE 11. Stockholders' Equity During calendar 1996, the Company declared and paid four quarterly cash dividends totaling $0.20 per share of common stock, and also declared and issued two 5% common stock dividends. During the transitional period ending December 31, 1995, the Company declared and paid a quarterly cash dividend of $0.05 per share along with a 5% common stock dividend. In January 1997, subsequent to the period reflected in this report, the Board of Directors declared the regular quarterly cash dividend of $0.05 per share payable on February 25, 1997, to shareholders of record First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) on February 11, 1997. (Stockholders' Equity and all per share figures have been adjusted to reflect all common stock dividends.) NOTE 12. Income Taxes Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable for future years to differences between the financial statement and tax basis of existing assets and liabilities. The effect of tax rate changes on deferred taxes is recognized in the income tax provision in the period that includes the enactment date. The components of income taxes are: ================================================================================ (In thousands of Three-Months dollars) December 31, December 31, September 29, September 30, 1996 1995 1995 1994 - -------------------------------------------------------------------------------- Federal Current $ 2,455 $ 260 $ 2,051 $ 1,463 Deferred (3) 416 (904) 466 State and local Current 991 82 1,097 755 Deferred 149 171 (374) 192 ================================================================================ Total income taxes $ 3,592 $ 929 $ 1,870 $ 2,876 ================================================================================
The reasons for the difference between the expected income tax expense using the federal statutory rate and the income tax expense are as follows: ================================================================================ (In thousands of Three-Months dollars) December 31, December 31, September 29, September 30, 1996 1995 1995 1994 - -------------------------------------------------------------------------------- Income taxes at federal statutory rate $ 3,092 $ 844 $ 1,775 $ 2,505 State income taxes, net of federal income taxes 753 167 477 625 Tax-exempt interest income (420) (126) (514) (348) Non-deductible expenses 167 44 132 94 - -------------------------------------------------------------------------------- Total income taxes $ 3,592 $ 929 $ 1,870 $ 2,876 ================================================================================
The temporary differences that give rise to significant portions of deferred tax assets are as follows: ============================================================================ (In thousands of dollars) December 31, December 31, September 29, 1996 1995 1995 (unaudited) -------------------------------------------------------------------------- Receivables $ 128 $ 67 $ 80 Securities held for investment (964) (262) (345) Fixed assets 486 309 267 Deferred compensation 1,631 1,633 2,057 Other 190 (130) 145 -------------------------------------------------------------------------- Total deferred tax assets $ 1,471 $ 1,617 $ 2,204 ==========================================================================
First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Company has not recorded a valuation allowance for deferred tax assets since income in the carryback period is sufficient to realize the benefit of future deductions. NOTE 13. Employee Benefit Plans The Company maintains a deferred profit sharing plan (Internal Revenue Code Section 401(k) Plan) which permits eligible employees to defer a percentage of their compensation. Company contributions to eligible participants may be made at the discretion of the Board of Directors. During the year ended December 31, 1996, the transitional period ending December 31, 1995, and the years ended September 29, 1995, and September 30, 1994 the Company contributed $103,000, $0, $140,000, and $56,000, respectively. The Company also maintains an Employee Stock Bonus Plan (Internal Revenue Code Section 401(a)) which permits eligible employees to contribute up to 8% of their compensation on an after-tax basis. The Company makes matching contributions equal to a percentage of each employee's contributions. Company contributions vest in accordance with the Plan and are tax deferred until withdrawal. Employee and Company contributions are invested solely in the common stock of the Company. During the year ended December 31, 1996, the transitional period ending December 31, 1995, and the years ended September 29, 1995, and September 30, 1994, the Company contributed $617,000, $163,000, $408,000, and $334,000, respectively. NOTE 14. Incentive Plans In 1982, the Company established a Stock Incentive Plan (the "1982 Plan") which, as amended by stockholders in 1987, authorized issuance of options to officers and key employees to purchase up to 800,000 shares of common stock. On February 27, 1989, stockholders approved adoption of the First Albany Companies Inc. 1989 Stock Incentive Plan (the "1989 Plan"). Coincident with the adoption of the 1989 Plan, the 1982 Plan was terminated. Options previously granted under the 1982 Plan remain valid in accordance with the terms of the grant of such options; however, the grant of new options under the 1982 Plan was ended. Both the 1982 Plan and 1989 Plan enable the Company to grant incentive stock options (ISOs) which meet the requirements of Section 422A of the Internal Revenue Code of 1954, as amended, and nonqualified stock options (NSOs). ISOs are granted at prices not less than fair value at the date of the grant; NSOs may be issued at prices less than fair market value. ISOs and NSOs may not have a term of more than ten years. Under certain conditions, the Company is required to purchase shares issued under this Plan at prices ranging from the original exercise or award price to the greater of the then book or market value. If NSOs are exercised, the difference between the option price and the selling price will be recognized as an expense in the income statement. In addition, under the 1989 Plan, stock appreciation rights (SARs) may be granted in tandem with ISOs or NSOs. SARs may be exercised only if the related options (or portions thereof) are surrendered and at such time as the fair market value of the shares underlying the option exceeds the option price for such shares. Upon exercise of SAR and surrender of the related option, an employee will be entitled to receive an amount equal to the excess of the fair market value of one share at the time of such surrender over the option price per share specified in such option times the number of such shares called for by the option, or portion thereof, which is so surrendered. Payment may be made in cash, shares of common stock, or a combination thereof. SARs may not be exercised before six months from date of grant. As of December 31, 1996, no SARs have been granted. Option transactions for the 3-year period ended December 31, 1996 under the 1982 Plan were as follows: (all are ISOs) First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Shares Weighted Average Subject Exercise to Option Price - -------------------------------------------------------------------------------- Balance at September 24, 1993 39,950 $ 5.39 Options granted 3,280 5.07 Options exercised (7,220) 5.14 Options terminated (4,410) 4.76 - -------------------------------------------------------------------------------- Balance at September 30, 1994 31,600 4.95 Options granted 2,908 4.60 Options exercised (11,605) 4.76 - -------------------------------------------------------------------------------- Balance at September 29, 1995 22,903 4.47 Options granted 1,145 4.08 Options exercised (4,923) 4.26 - -------------------------------------------------------------------------------- Balance at December 31, 1995 19,125 4.04 Options granted 1,959 3.75 Options exercised (4,022) 3.55 - -------------------------------------------------------------------------------- Balance at December 31, 1996 17,062 $ 3.73 ================================================================================
There were no shares available for grants of options under the 1982 Plan at December 31, 1996; December 31, 1995; September 29, 1995; and September 30, 1994. During calendar year 1996, the Company declared two 5% common stock dividends. These dividends resulted in an additional 1,959 options authorized. All shares subject to options were exercisable at the end of each period presented. At December 31, 1996, options outstanding and exercisable under the 1982 Plan had an average exercise price of $3.73 and an average remaining contractual life of 1.48 years. Option transactions for the 3-year period ended December 31, 1996 under the 1989 Plan were as follows: (all are ISOs) Shares Weighted Average Subject Exercise to Option Price - -------------------------------------------------------------------------------- Balance at September 24, 1993 459,345 $ 5.40 Options granted 176,862 6.77 Options exercised (57,061) 5.23 Options terminated (11,663) 4.98 - -------------------------------------------------------------------------------- Balance at September 30, 1994 567,483 5.86 Options granted 199,454 7.28 Options exercised (46,646) 4.59 Options terminated (479) 4.51 - -------------------------------------------------------------------------------- Balance at September 29, 1995 719,812 5.85 Options granted 47,569 6.06 Options exercised (1,447) 7.14 - -------------------------------------------------------------------------------- Balance at December 31, 1995 765,934 5.60 Options granted 262,441 8.51 Options exercised (132,255) 4.39 Options terminated (51,359) 6.59 - -------------------------------------------------------------------------------- Balance at December 31, 1996 844,761 $ 6.11 ================================================================================
First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) On May 30, 1996, the Company's stockholders approved an amendment to the 1989 Plan, which was adopted by the Board of Directors on April 25, 1996. This amendment increased the number of shares available for issuance under the 1989 plan by 500,000. Additionally, during calendar year 1996, the Company declared two 5% common stock dividends. These dividends resulted in an additional 133,983 options authorized. There were 760,402; 337,501; 332,456 and 431,374 shares available for grants of options at December 31, 1996, December 31, 1995, September 29, 1995 and September 30, 1994, respectively. The following table summarizes information about stock options outstanding under the 1989 Plan at December 31, 1996: Outstanding Exercisable Exercise Average Average Price Average Life Exercise Exercise Range Shares (years) Price Shares Price - -------------------------------------------------------------------------------- $3.51-$4.35 378,940 4.40 $ 3.79 373,135 $ 3.78 $6.48-$7.39 272,621 5.04 7.09 208,155 7.22 $9.29 193,200 3.81 9.29 - -------------------------------------------------------------------------------- 844,761 4.48 $ 6.11 581,290 $ 5.01 ================================================================================
At December 31, 1995, 634,204 options with an average exercise price of $5.27 were exercisable; at September 29, 1995, 557,442 options with an average exercise price of $5.41 were exercisable; and at September 30, 1994, 523,625 options with an average exercise price of $5.91 were exercisable. As discussed in Note 10, the Company granted options to purchase 84,000 shares of the Company's stock pursuant to a subordinated debt agreement entered into in 1996. The market price of the Company's stock at the date of agreement was $10 per share. The exercise price of these options is $11.90 per share, and they expire on July 31, 2000. The Company has elected to follow Accounting Principals Board No. 25 "Accounting for Stock Issued to Employees" ("APB 25") in accounting for the stock option plans. Under APB 25, no compensation cost has been recognized in 1996, 1995, and 1994. Had compensation cost and fair value been determined pursuant to Financial Accounting Standard No. 123 (FAS 123) "Accounting for Stock-Based Compensation", net income would have decreased from $5,500,000 to $5,294,000 in 1996 and from $3,350,000 to $3,245,000 in 1995. Primary earnings per share would decrease from $1.02 to $0.98 in 1996 and from $0.65 to $0.63 in 1995. Fully diluted earnings per share would decrease from $1.02 to $0.98 in 1996 and from $0.64 to $0.62 in 1995. The initial impact of FAS 123 on pro forma earnings per share may not be representative of the effect on income in future years because options vest over several years and additional option grants may be made each year. The weighted average fair value of options granted during 1996 and 1995 under FAS 123 was $3.21 and $2.45, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1996 and 1995, respectively: dividend yield of 2.76% for both years; expected volatility of 54.7% for both years; risk-free interest rates ranging from 5.17% to 6.26% in 1996 and 5.38% to 6.66% in 1995; and expected lives of 2.6 and 1.2 years for 1996 and 1995, respectively. In 1992, the Company established the First Albany Companies Inc. Restricted Stock Plan which authorized the issuance of up to 370,996 shares of common stock (adjusted for all stock dividends) to The First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) certain key employees of the Company. Awards under this plan expire over a four-year period after the award date and are subject to certain restrictions including continued employment. As of December 31, 1996, 105,226 shares have been awarded under this plan. The fair market value of the awards will be amortized over the period in which the restrictions are outstanding. The Company has various other incentive programs which are offered to eligible employees. These programs consist of cash incentives and deferred bonuses. Amounts awarded vest over periods ranging from three to five years. Costs are amortized over the vesting period and aggregated $4,484,000 in 1996, $395,000 in the transitional period ending December 31, 1995, $1,343,000 for the year ended September 29, 1995, and $1,828,000 for the year ended September 30, 1994. NOTE 15. Commitments and Contingencies The Company's headquarters, sales offices, and certain office and communication equipment are leased under noncancellable operating leases, which expire at various times through 2008. Future minimum annual rentals payable are as follows: ------------------------------- ------------------------------- (In thousands of dollars) 1997 $ 5,888 1998 6,166 1999 6,505 2000 4,677 2001 4,286 Thereafter 19,229 ------------------------------- Total $46,751 ===============================
Annual rental expense including utilities for the year ended December 31, 1996, the transitional period ending December 31, 1995, and the fiscal years ended September 29, 1995 and September 30, 1994 approximated $4,175,000, $906,000, $3,630,000, and $3,955,000, respectively. In the normal course of business, the Company has been named a defendant, or otherwise has possible exposure, in several claims. Certain of these are class actions which seek unspecified damages which could be substantial. Although there can be no assurance as to the eventual outcome of litigation in which the Company has been named as a defendant or otherwise has possible exposure, the Company has provided for those actions it believes are likely to result in adverse dispositions. Although further losses are possible, the opinion of management, based upon the advice of its attorneys and general counsel, is that such litigation will not, in the aggregate, have a material adverse effect on the Company's liquidity or financial position, although it could have a material effect on quarterly or annual operating results in the period in which it is resolved. The Company is contingently liable under bank stand-by letter of credit agreements, executed in connection with security clearing activities, totaling $3,200,000 at December 31, 1996. NOTE 16. Net Capital Requirements The Corporation is subject to the SEC's Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital. The Corporation has elected to use the alternative method, permitted by the Rule, which requires that the Corporation maintain a minimum net capital equal to 2 percent of aggregate debit balances arising from customer transactions, as defined. At December 31, 1996, the First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Corporation had net capital of $16,478,000 which equaled 12% of aggregate debit balances and $13,783,000 in excess of required minimum net capital. NOTE 17. Financial Instruments with Off-Balance-Sheet Risk In the normal course of business, the Company's customer and correspondent clearance activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose the Company to off-balance-sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations, and the Company has to purchase or sell the financial instrument underlying the contract at a loss. The Company's customer securities activities are transacted on either a cash or margin basis. In margin transactions, the Company extends credit to its customers, subject to various regulatory and internal margin requirements, collateralized by cash and securities in the customers' accounts. In connection with these activities, the Company executes and clears customer transactions involving the sale of securities not yet purchased, substantially all of which are transacted on a margin basis subject to individual exchange regulations. Such transactions may expose the Company to significant off-balance-sheet risk in the event margin requirements are not sufficient to fully cover losses that customers may incur. In the event the customer fails to satisfy its obligations, the Company may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customer's obligations. The Company seeks to control the risks associated with its customer activities by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company monitors required margin levels daily and, pursuant to such guidelines, requires the customer to deposit additional collateral, or to reduce positions, when necessary. The Company's customer financing and securities settlement activities require the Company to pledge customer securities as collateral in support of various secured financing sources such as bank loans and securities loaned. In the event the counterparty is unable to meet its contractual obligation to return customer securities pledged as collateral, the Company may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy its customer obligations. The Company controls this risk by monitoring the market value of securities pledged on a daily basis and by requiring adjustments of collateral levels in the event of excess market exposure. In addition, the Company establishes credit limits for such activities and monitors compliance on a daily basis. In addition, the Company has sold securities that it does not currently own and therefore will be obligated to purchase such securities at a future date. The Company has recorded these obligations in the financial statements at the market values of the related securities and will incur a loss if the market value of the securities increases. The Company acts as a manager and co-manager in underwriting security transactions. In this capacity, there is risk if the potential customer does not fulfill the obligation to purchase the securities. This risk is mitigated by the fact that the Company deals primarily with institutional investors. In most cases, no one institutional customer subscribes to the majority of the securities being sold, thereby spreading the risk for this type of loss among many established customers. The Company also maintains credit limits for these activities and monitors compliance with applicable limits and industry regulations on a daily basis. First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 18. Concentrations of Credit Risk The Company is engaged in various trading and brokerage activities whose counterparties primarily include broker-dealers, banks, and other financial institutions. In the event counterparties do not fulfill their obligations, the Company may be exposed to risk. The risk of default depends on the credit worthiness of the counterparty or issuer of the instrument. The Company seeks to control credit risk by following an established credit approval process, monitoring credit limits, and requiring collateral where appropriate. The Company purchases debt securities and may have significant positions in its inventory subject to market and credit risk. In order to control these risks, security positions are monitored on at least a daily basis. Should the Company find it necessary to sell such a security, it may not be able to realize the full carrying value of the security due to the significance of the position sold. The Company reduces its exposure to changes in securities valuation with the use of municipal bond index futures contracts. (See Note 20.) If a single security position held in inventory represents a significant portion of net capital, referred to as "undue concentration" as defined by SEC Rule 15c3-1, the Company may not be able to realize the full carrying value of the security if the entire position was required to be sold. The total value of securities held in inventory at December 31, 1996, December 31, 1995 (unaudited) and September 29, 1995 which met this criterion was $76,151,000, $29,214,000, and $8,659,000, respectively. The securities held in inventory at December 31, 1996 which met the criterion were sold subsequently at a net realized gain. NOTE 19. Market Value of Financial Instruments The financial instruments of the Company are reported on the Statement of Financial Condition at market or fair value or at carrying amounts that approximate fair value with the exception of its investments described in Note 6. The fair value of other financial assets and liabilities (consisting primarily of receivables from and payables to brokers, dealers, clearing agencies and customers; securities borrowed and loaned; and bank loans payable) is considered to approximate the carrying value due to the short-term nature of the financial instruments. The Company also enters into transactions in financial instruments that are not recognized in the Statement of Financial Condition. The notional amounts of the open transactions at December 31, 1996 are disclosed in Note 20. NOTE 20. Derivative Financial Instruments The Company does not engage in the proprietary trading of derivative securities with the exception of highly liquid index futures contracts and options. These index futures contracts and options are used to hedge securities positions in the Company's inventory. Gains and losses on these financial instruments are included as revenues from principal transactions. Trading profits and losses relating to these financial instruments were as follows: ================================================================================ (In thousands of dollars) Year Ended Three-Months Year Ended December 31, 1996 December 31, 1995 September 29,1995 - -------------------------------------------------------------------------------- Trading Profits-State and Municipal Bonds $2,032 $2,345 $5,068 Index Futures Hedging 594 (457) (1,350) Trading Profits-Corporate Stocks 1,159 Options (206) - -------------------------------------------------------------------------------- Net Revenues $2,626 $1,888 $4,671 ================================================================================
First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) During the year ended September 30, 1994, the Company did not engage in proprietary trading of index future contracts and options. As of December 31, 1996, the contractual or notional amounts related to these financial instruments were as follows: ================================================================================ (In thousands of dollars) Average Notional or Year End Notional or Contract Market Value Contract Market Value - -------------------------------------------------------------------------------- Index Futures Contracts $(7,750) $(5,881) - --------------------------------------------------------------------------------
As of September 29, 1995, the contractual or notional amounts related to these financial instruments were as follows: ================================================================================ (In thousands of dollars) Average Notional or Year End Notional or Contract Market Value Contract Market Value - -------------------------------------------------------------------------------- Index Futures Contracts $(5,819) $(20,773) Options 121 100
The contractual or notional amounts related to these financial instruments reflect the volume and activity and do not reflect the amounts at risk. The amounts at risk are generally limited to the unrealized market valuation gains on the instruments and will vary based on changes in market value. Futures contracts are executed on an exchange, and cash settlement is made on a daily basis for market movements. Open equity in the futures contracts are recorded as receivables from clearing organizations. The settlement of these transactions is not expected to have a material adverse effect on the financial condition of the Company. FIRST ALBANY COMPANIES INC. SUPPLEMENTARY DATA SELECTED QUARTERLY FINANCIAL DATA (Unaudited) (In thousands of dollars, except per share data) Quarters Ended - -------------------------------------------------------------------------------- 1996 - Calendar Year Mar. 29 June 28 Sep. 27 Dec. 31 - -------------------------------------------------------------------------------- Total revenues $ 40,290 $ 42,213 $ 37,951 $ 47,738 Interest expense (4,954) (5,173) (5,972) (9,932) - -------------------------------------------------------------------------------- Net revenues 35,336 37,040 31,979 37,806 Total expenses (excluding interest)(32,479) (34,460) (30,375) (35,756) - -------------------------------------------------------------------------------- Income before income taxes 2,857 2,580 1,604 2,050 Income tax expense (1,103) (995) (673) (821) - -------------------------------------------------------------------------------- Net income $ 1,754 $ 1,585 $ 931 $ 1,229 ================================================================================ Net income per common and common equivalent share: Primary $ .32 $ .30 $ .17 $ .23 Fully diluted $ .32 $ .30 $ .17 $ .23
Three months ended - -------------------------------------------------------------------------------- 1995 - Transitional Period Dec. 31 - -------------------------------------------------------------------------------- Total revenues $ 37,404 Interest expense (6,631) - -------------------------------------------------------------------------------- Net revenues 30,773 Total expenses (excluding interest) (28,291) - -------------------------------------------------------------------------------- Income before income taxes 2,482 Income tax expense (929) - -------------------------------------------------------------------------------- Net income $ 1,553 ================================================================================ Net income per common and common equivalent share: Primary $ .29 Fully diluted $ .29
Quarters Ended - -------------------------------------------------------------------------------- 1995 - Fiscal Year Dec. 31 Mar. 31 June 30 Sept. 29 - -------------------------------------------------------------------------------- Total revenues $ 28,825 $ 27,884 $ 32,760 $ 33,630 Interest expense (4,551) (4,173) (5,681) (5,499) - -------------------------------------------------------------------------------- Net revenues 24,274 23,711 27,079 28,131 Total expenses (excluding interest) (22,995) (22,994) (25,494) (26,492) - -------------------------------------------------------------------------------- Income before income taxes 1,279 717 1,585 1,639 Income tax expense (436) (205) (592) (636) - -------------------------------------------------------------------------------- Net income $ 843 $ 512 $ 993 $ 1,003 ================================================================================ Net income per common and common equivalent share: Primary $ .16 $ .10 $ .19 $ .19 Fully diluted $ .16 $ .10 $ .19 $ .19
FIRST ALBANY COMPANIES INC. All per share figures have been restated for common stock dividends paid. The sum of the quarters' earnings per share amount does not always equal the full fiscal year's amount due to the effect of averaging the number of shares of common stock and common stock equivalents throughout the year. Item 9. Changes in and Disagreements with Accountants on Accounting and - ------------------------------------------------------------------------ Financial Disclosure. - -------------------- None. PART III Item 10. Directors and Executive Officers of the Registrant. - ----------------------------------------------------------- Except as set forth below, the information required by this item will be contained under the caption "Election of Directors" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on or about May 15, 1997. Such information is incorporated herein by reference to the proxy statement. Information (not included in the Company's definitive proxy statement for the 1997 Annual Meeting of Stockholders) regarding certain executive officers of the Company is as follows: Edwin T. Brondo, age 49, Vice President of the Company and Senior Vice President and Chief Administrative Officer of First Albany Corporation, joined First Albany Corporation in 1993 and was elected Vice President of First Albany Companies Inc. in 1994. He previously held senior management positions at Bankers Trust, Goldman Sachs, and Morgan Stanley. David J. Cunningham, age 50, Chief Financial Officer of the Company and Senior Vice President and Chief Financial Officer of First Albany Corporation, joined First Albany Corporation in 1975 and has served as Chief Financial Officer of First Albany Corporation since 1980 and First Albany Companies Inc. since fiscal 1986. Michael R. Lindburg, age 47, Secretary, and General Counsel of the Company, and Senior Vice President, Managing Director of Retail Sales of First Albany Corporation, joined First Albany Corporation in 1986 and has served as Vice President, Secretary, and General Counsel of First Albany Companies Inc. since 1986. He previously served as Vice President and General Counsel of the Boston Stock Exchange. Item 11. Executive Compensation. - -------------------------------- The information required by this item will be contained under the caption "Compensation of Executive Officers and Directors" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on or about May 15, 1997. Such information is incorporated herein by reference to the proxy statement. Item 12. Security Ownership of Certain Beneficial Owners and Management. - ----------------------------------------------------------------------- The information required by this item will be contained under the caption "Stock Ownership of Principal Owners and Management" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on or about May 15, 1997. Such information is incorporated herein by reference to the proxy statement. Item 13. Certain Relationships and Related Transactions. - -------------------------------------------------------- The information required by this item will be contained under the caption "Certain Transactions" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on or about May 15, 1997. Such information is incorporated herein by reference to the proxy statement. Part IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K. - ------------------------------------------------------------------------- (a) (1) The following financial statements are included in Part II, Item 8: Report of Independent Accountants Financial Statements: Consolidated Statements of Income For the Calendar Year Ended December 31, 1996; the three-month Transition Period ended December 31, 1995 and; the Fiscal Year Ended September 29, 1995, and the Fiscal Year Ended September 30, 1994 Consolidated Statements of Financial Condition as of December 31, 1996, December 31, 1995 (unaudited) and September 29, 1995 Consolidated Statements of Changes in Stockholders' Equity for the Calendar Year Ended December 31, 1996; the three-month Transition Period ended December 31, 1995, the Fiscal Year Ended September 29, 1995, and the Fiscal Year Ended September 30, 1994 Consolidated Statements of Cash Flows for the Calendar Year Ended December 31, 1996; the Three-month Transition Period ended December 31, 1995; the Fiscal Year Ended September 29, 1995, and the Fiscal Year Ended September 30, 1994 Notes to Consolidated Financial Statements (2) The following financial statement schedule for the periods 1996, 1995, and 1994 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. (3) Exhibits included herein: Exhibit Number Description - ------ ----------- 3.1 Certificate of Incorporation of First Albany Companies Inc. (filed as Exhibit No. 3.1 to Registration Statement No. 33-1353). 3.2 By-laws of First Albany Companies Inc. (filed as Exhibit No. 3.2 to Registration Statement No. 33-1353). 3.2a By-laws of First Albany Companies Inc., as amended (as filed as Exhibit No. 3.2a to Form 10-K for the fiscal year ended September 24, 1993). 3.2b By-laws of First Albany Companies Inc., as amended (restated for purpose of this filing). 4 Specimen Certificate of Common Stock, par value $.01 per share (filed as Exhibit No. 4 to Registration Statement No. 33-1353). 10.6 Deferred Profit Sharing Plan of First Albany Corporation effective October 1, 1982, as amended by shareholder vote, dated January 19, 1987 (filed as Exhibit 10.6 to Form 10-K for the fiscal year ended September 30, 1986). 10.7 Incentive Stock Option Plan of First Albany Corporation effective October 1, 1982, as amended by shareholder vote, dated January 19, 1987 (filed as Exhibit 10.7 to Form 10-K for the fiscal year ended September 30, 1987). 10.10 First Albany Companies Inc. Stock Bonus Plan effective July 8, 1987 (filed as Registration Statement No. 33-15220 (Form B) dated July 8, 1987). 10.10a First Albany Companies Inc. Stock Bonus Plan, as amended, effective June 25, 1990 (filed as Registration Statement No. 33-35166 (Form S-8) dated June 25, 1990). 10.10b First Albany Companies Inc. Stock Bonus Plan, as amended, effective February 4, 1994 (filed as Registration Statement 33-52153 (Form S-8) dated February 4, 1994). 10.10c First Albany Companies Inc. Stock Bonus Plan, as amended, effective June 2, 1995 (filed as Registration Statement 33-59855 (Form S-8) dated June 2, 1995). 10.10d First Albany Companies Inc. Stock Bonus Plan, as amended, effective June 2, 1995 (filed as Registration Statement 333-18645 (Form S-8) dated December 23, 1996). 10.12 First Albany Companies Inc. 1989 Stock Incentive Plan effective February 27, 1989, as approved by shareholder vote dated February 27, 1989 (filed as Exhibit 10.12 to Form 10-K for the fiscal year ended September 30, 1989). 10.15 Lease dated June 12, 1992, between First Albany Companies Inc. and Olympia and York Limited Partnership for office space at 53 State Street, Boston, Massachusetts (filed as Exhibit 10.15 to Form 10-K for the fiscal year ended September 25, 1992). 10.16 The First Albany Companies Inc. Restricted Stock Plan as adopted by the Company on April 27, 1992 (filed as Exhibit 10.16 to Form 10-K for the fiscal year ended September 25, 1992). (3) Exhibits included herein: (continued) Exhibit Number Description - ------- ----------- 10.18 Sublease dated October 13, 1995 between First Albany Companies Inc. and KeyCorp for office facilities at 30 South Pearl Street, Albany, New York. (Filed as Exhibit 10.18 to Form 10K for fiscal year ended September 29, 1995). 10.19 Term Loan Agreement dated March 29, 1996 between First Albany Companies Inc. and OnBank Trust & Co. 10.20 Subordinated Loan Agreement dated September 16, 1996 between First Albany Companies Inc. and Sharon M. Duker. 10.21 Master Equipment Lease Agreement dated September 25, 1996 between First Albany Companies Inc. and KeyCorp Leasing Ltd. 10.22 Lease dated March 21, 1996, between First Albany Companies Inc. and Mid-City Associates for office space at One Penn Plaza, New York, New York. 11 Computation of per share earnings. 22 List of Subsidiaries of First Albany Companies Inc. 24 Consent of Coopers & Lybrand L.L.P. 24b Reports on Form 8-K: No reports on Form 8-K have been filed by the Registrant during the last quarter of the period covered by this report. 27 Financial Data Schedule BD FIRST ALBANY COMPANIES INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS PERIODS ENDED DECEMBER 31, 1996, DECEMBER 31, 1995, SEPTEMBER 29, 1995, AND SEPTEMBER 30, 1994 COL. A COL. B COL. C COL. D COL. E Additions Balance at Charged to Balance Beginning Costs and at End of Description of Period Expenses Deductions Period - -------------------------------------------------------------------------------- Allowance for doubtful accounts -- deducted from receivables from customers: Calendar Year 1996 $ 219,000 $ 120,000 $ 35,000 $ 304,000 Three Month Transition Period 1995 $ 125,000 $ 94,000 $ 0 $ 219,000 Fiscal Year 1995 $ 106,000 $ 120,000 $ 101,000 $ 125,000 Fiscal Year 1994 $ 125,000 $ 120,000 $ 139,000 $ 106,000
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST ALBANY COMPANIES INC. By: /s/ GEORGE C. MCNAMEE --------------------- George C. McNamee, Chairman and Co-Chief Executive Officer Date: March 26, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Signature Title Date /s/ GEORGE C. MCNAMEE Chairman and Co-Chief - --------------------- Executive Officer March 26, 1997 George C. McNamee /s/ ALAN P. GOLDBERG President and Co-Chief - -------------------- Executive Officer March 26, 1997 Alan P. Goldberg /s/ DAVID J. CUNNINGHAM Vice President and March 26, 1997 - ----------------------- Chief Financial Officer David J. Cunningham (Principal Accounting Officer) /s/ HUGH A. JOHNSON, JR. Vice President and Director March 26, 1997 - ------------------------ Hugh A. Johnson, Jr. /s/ J. ANTHONY BOECKH Director March 26, 1997 - --------------------- J. Anthony Boeckh /s/ WALTER M. FIEDEROWICZ Director March 26, 1997 - ------------------------- Walter M. Fiederowicz /s/ DANIEL V. MCNAMEE Director March 26, 1997 - --------------------- Daniel V. McNamee /s/ CHARLES L. SCHWAGER Director March 26, 1997 - ----------------------- Charles L. Schwager Director March , 1997 - -------------------- Benaree P. Wiley EX-3.2B 2 30 EXHIBIT 3.2b AMENDED AND RESTATED BYLAWS -of- FIRST ALBANY COMPANIES INC. (herein called the "Corporation") ARTICLE I Shareholders Section 1.01. Annual Meeting. The annual meeting of the stockholders of the Corporation for the election of directors and for the transaction of such other business as may properly come before such meeting shall be held at the principal office of the Corporation in the City of Albany, New York, on such date and at such time as may be fixed by the Board of Directors. Section 1.02. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, may be called at any time by the President or by resolution of the Board of Directors. Special meetings of shareholders shall be held at such place as shall be fixed by the person or persons calling the meeting and stated in the notice or waiver of notice of the meeting. At any special meeting only such business may be transacted which is related to the purpose or purposes set forth in the notice or waiver of notice of the meeting. Section 1.03. Notice of Meetings of Shareholders. Whenever shareholders are required or permitted to take any action at a meeting, written notice shall be given stating the place, date and hour of the meeting and, unless it is the annual meeting, indicating that it is being issued by or at the direction of the person or persons calling the meeting. Notice of a special meeting shall also state the purpose or purposes for which the meeting is called. If, at any meeting, action is proposed to be taken which would, if taken, entitle shareholders fulfilling the requirements of Section 623 of the Business Corporation Law to receive payment for their shares, the notice of such meeting shall include a statement of that purpose and to that effect and shall be accompanied by a copy of said Section 623 or an outline of its material terms. A copy of the notice of any meeting shall be given, personally or by mail, not less than ten nor more than fifty days before the date of the meeting, to each shareholder entitled to vote at such meeting. If mailed, such notice is given when deposited in the United States mail, with postage thereon prepaid, directed to the shareholder at his address as it appears on the record of shareholders, or, if he shall have filed with the Secretary of the Corporation a written request that notices to him be mailed to some other address, then directed to him at such other address. When a meeting is adjourned to another time or place, it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken, and at the adjourned meeting any business may be transacted that might have been transacted on the original date of the meeting. However, if after the adjournment, the Board of Directors fixes a new record date for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record on the new record date entitled to notice under the next preceding paragraph. Section 1.04. Waivers of Notice. Notice of meeting need not be given to any shareholder who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of any shareholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him. Section 1.05. Quorum. The holders of a majority of the shares entitled to vote thereat shall constitute a quorum at a meeting of shareholders for the transaction of any business. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any shareholders. The shareholders present may adjourn the meeting despite the absence of a quorum and at any such adjourned meeting at which the requisite amount of voting stock shall be represented, any business may be transacted which might have been transacted at the meeting as originally noticed. Section 1.06. Fixing Record Date. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action, the Board of Directors may fix, in advance, a date as the record date for any such determination of shareholders. Such date shall not be more than fifty nor less than ten days before the date of such meeting, nor more than fifty days prior to any other action. When a determination of shareholders of record entitled to notice of or to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date under this section for the adjourned meeting. Section 1.07. List of Shareholders at Meetings. A list of shareholders as of the record date, certified by the corporate officer responsible for its preparation or by a transfer agent, shall be produced at any meeting of shareholders upon the request thereat or prior thereto of any shareholder. If the right to vote at any meeting is challenged, the inspectors of election, or person presiding thereat, shall require such list of shareholders to be produced as evidence of the right of the persons challenged to vote at such meeting, and all persons who appear from such list to be shareholders entitled to vote thereat may vote at such meeting. Section 1.08. Proxies. Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize another person or persons to act for him by proxy. Every proxy must be signed by the shareholder or his attorney-in- fact. No proxy shall be valid after the expiration of eleven months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the shareholder executing it, except as otherwise provided in this section. The authority of the holder of a proxy to act shall not be revoked by the incompetence or death of the shareholder who executed the proxy unless, before the authority is exercised, written notice of an adjudication of such incompetence or of such death is received by the corporate officer responsible for maintaining the list of shareholders. Except when other provision shall have been made by written agreement between the parties, the record holder of shares which he holds as pledgee or otherwise as security or which belong to another, shall issue to the pledgor or to such owner of such shares, upon demand therefor and payment of necessary expenses thereof, a proxy to vote or take other action thereon. A shareholder shall not sell his vote or issue a proxy to vote to any person for any sum of money or anything of value, except as authorized in this section and Section 620 of the Business Corporation Law. A proxy which is entitled "irrevocable proxy" and which states that it is irrevocable, is irrevocable when it is held by any of the following or a nominee of any of the following: (1) A Pledgee; (2) A person who has purchased or agreed to purchase the shares; (3) A creditor or creditors of the Corporation who extend or continue credit to the Corporation in consideration of the proxy if the proxy states that it was given in consideration of such extension or continuation of credit, the amount thereof, and the name of the person extending or continuing credit; (4) A person who has contracted to perform services as an officer of the Corporation, if a proxy is required by the contract of employment, if the proxy states that it was given in consideration of such contract of employment, the name of the employee and the period of employment contracted for; (5) A person designated by or under an agreement under paragraph (a) of said Section 620. Notwithstanding a provision in a proxy, stating that it is irrevocable, the proxy becomes revocable after the pledge is redeemed, or the debt of the Corporation is paid, or the period of employment provided for in the contract of employment has terminated, or the agreement under paragraph (a) of said Section 620 has terminated; and, in a case provided for in subparagraph (3) or (4) above, becomes revocable three years after the date of the proxy or at the end of the period, if any, specified therein, whichever period is less, unless the period of irrevocability is renewed from time to time by the execution of a new irrevocable proxy as provided in this section. This paragraph does not affect the duration of a proxy under the second paragraph of this section. A proxy may be revoked, notwithstanding a provision making it irrevocable, by a purchaser of shares without knowledge of the existence of the provision unless the existence of the proxy and its irrevocability is noted conspicuously on the face or back of the certificate representing such shares. Section 1.09. Selection and Duties of Inspectors. The Board of Directors, in advance of any shareholders' meeting, may appoint one or more inspectors to act at the meeting or any adjournment thereof. If inspectors are not so appointed, the person presiding at a shareholders' meeting may, and on the request of any shareholder entitled to vote thereat shall appoint one or more inspectors. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the Board of Directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting or any shareholder entitled to vote thereat, the inspectors shall make a report in writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated and of the vote as certified by them. Unless appointed by the Board of Directors or requested by a shareholder, as above provided in this section, inspectors shall be dispensed with at all meetings of shareholders. Section 1.10. Qualification of Voters. Every shareholder of record shall be entitled at every meeting of shareholders to one vote for every share standing in his name on the record of shareholders, except as expressly provided otherwise in this section and except as otherwise expressly provided in the Certificate of Incorporation of the Corporation. Treasury shares and shares held by another domestic or foreign corporation of any type or kind, if a majority of the shares entitled to vote in the election of directors of such other corporation is held by the Corporation, shall not be shares entitled to vote or to be counted in determining the total number of outstanding shares. Shares held by an administrator, executor, guardian, conservator, committee, or other fiduciary, except a trustee, may be voted by him, either in person or by proxy, without transfer of such shares into his name. Shares held by a trustee may be voted by him; either in person or by proxy, only after the shares have been transferred into his name as trustee or into the name of his nominee. Shares held by or under the control of a receiver may be voted by him without the transfer thereof into his name if authority so to do is contained in an order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, or a nominee of the pledgee. Redeemable shares which have been called for redemption shall not be deemed to be outstanding shares for the purpose of voting or determining the total number of shares entitled to vote on any matter on and after the date on which written notice of redemption has been sent to holders thereof and a sum sufficient to redeem such shares has been deposited with a bank or trust company with irrevocable instruction and authority to pay the redemption price to the holders of the shares upon surrender of certificates therefor. Shares standing in the name of another domestic or foreign corporation of any type or kind may be voted by such officer, agent or proxy as the bylaws of such corporation may provide, or, in the absence of such provision, as the board of directors of such corporation may determine. If shares are registered on the record of shareholders of the Corporation in the name of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the secretary of the Corporation is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (1) If only one votes, the vote shall be accepted by the Corporation as the vote of all; (2) If more than one vote, the act of the majority so voting shall be accepted by the Corporation as the vote of all, (3) If more than one vote, but the vote is equally divided on any particular matter, the vote shall be accepted by the Corporation as a proportionate vote of the shares; unless the Corporation has evidence, on the record of shareholders or otherwise, that the shares are held in a fiduciary capacity. Nothing in this paragraph shall alter any requirement that the exercise of fiduciary powers be by act of a majority, contained in any law applicable to such exercise of powers (including Section 10-10.7 of the Estates, Powers and Trusts Law of the State of New York); (4) When shares as to which the vote is equally divided are registered on the record of shareholders of the Corporation in the name of, or have passed by operation of law or by virtue of any deed of trust or other instrument to two or more fiduciaries, any court having jurisdiction of their accounts, upon petition by any of such fiduciaries or by any party in interest, may direct the voting of such shares for the best interest of the beneficiaries. This paragraph shall not apply in any case where the instrument or order of the court appointing fiduciaries shall otherwise direct how such shares shall be voted; and (5) If the instrument or order furnished to the Secretary of the Corporation shows that a tenancy is held in unequal interests, a majority or equal division for the purposes of this paragraph shall be a majority or equal division in interest. Notwithstanding the foregoing paragraphs of this section, the Corporation shall be protected in treating the persons in whose names shares stand on the record of shareholders as the owners thereof for all purposes. Section 1.11. Vote of Shareholders. Directors shall be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares entitled to vote in the election. Whenever any corporate action, other than the election of directors, is to be taken by vote of the shareholders, it shall, except as otherwise required by the Business Corporation Law or by the Certificate of Incorporation of the Corporation, be authorized by a majority of the votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon. The vote upon any question before any shareholders' meeting need not be by ballot. Section 1.12. Written Consent of Shareholders. Whenever shareholders are required or permitted to take any action by vote, such action may be taken without a meeting on written consent, setting forth the action so taken, signed by the holders of all outstanding shares entitled to vote thereon. This paragraph shall not be construed to alter or modify the provisions of any section of the Business Corporation Law or any provision in the Certificate of Incorporation of the Corporation not inconsistent with the Business Corporation Law under which the written consent of the holders of less than all outstanding shares is sufficient for corporate action. Written consent thus given by the holders of all outstanding shares entitled to vote shall have the same effect as a unanimous vote of shareholders. ARTICLE II Directors Section 2.01. Management of Business: Qualifications of Directors. The business of the Corporation shall be managed under the direction of its Board of Directors. Each member of the Board of Directors shall be at least eighteen years of age. Directors need not be stockholders. The Board of Directors, in addition to the powers and authority expressly conferred upon it by statute, by the Certificate of Incorporation of the Corporation, by these Bylaws and otherwise, is hereby empowered to exercise all such powers as may be exercised by the Corporation, except as expressly provided otherwise by the Constitution and statutes of the State of New York, by the Certificate of Incorporation of the Corporation and by these Bylaws. Section 2.02. Number. The number of directors which shall constitute the entire Board of Directors shall be eight, but this number may be increased and subsequently again increased or decreased by an amendment to these Bylaws, except that the number shall never be less than three nor more than nine and that no decrease shall shorten the term of any incumbent director. Section 2.03. Election and Term. At each annual meeting of shareholders, directors shall be elected to hold office until the next annual meeting, subject to the provisions of Section 2.05 hereof. Each director shall hold office until the expiration of the term for which he is elected, and until his successor has been elected and qualified. Section 2.04. Resignations. Any director of the Corporation may resign at any time by giving written notice to the Board of Directors, the President or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, if any, or if no time is specified therein, then upon receipt of such notice by the addressee; and, unless otherwise provided therein, the acceptance of such resignation shall not be necessary to make it effective. Section 2.05. Removal of Directors. Any or all of the directors may be removed at any time (a) for cause by vote of the shareholders or by action of the Board of Directors or (b) without cause by vote of the shareholders, except as expressly provided otherwise by Section 706 of the Business Corporation Law. Section 2.06. Newly Created Directorships and Vacancies. Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the Board of Directors for any reason except the removal of directors without cause may be filled by vote of the Board of Directors. If the number of directors then in office is less than a quorum, such newly created directorships and vacancies may be filled by vote of a majority of the directors then in office. The Board of Directors shall fill vacancies occurring in the Board of Directors by reason of the removal of directors without cause. A director elected to fill a vacancy shall hold office until the next meeting of shareholders at which the election of directors is in the regular order of business, and until his successor has been elected and qualified. Section 2.07. Quorum and Vote of Directors. At all meetings of the Board of Directors, a majority of the entire Board of Directors shall be necessary and sufficient to constitute a quorum for the transaction of business. The vote of a majority of the directors present at the time of the vote, if a quorum is present at such time, shall be the act of the Board of Directors, except as expressly provided otherwise in these Bylaws and by the statutes of the State of New York. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting of the Board of Directors to another time and place. Notice of any adjournment need not be given if such time and place are announced at the meeting. Section 2.08. Annual Meeting. The newly elected Board of Directors shall meet immediately following the adjournment of the annual meeting of shareholders in each year at the same place and no notice of such meeting shall be necessary. Section 2.09. Regular Meetings. Regular meetings of the Board of Directors may be held at such times and places as shall from time to time be fixed by the Board of Directors and no notice thereof shall be necessary. Section 2.10. Special Meetings. Special meetings may be called at any time by the President, or by resolution of the Board of Directors. Special meetings shall be held at such places as shall be fixed by the person or persons calling the meeting and stated in the notice or waiver of notice of the meeting. Special meetings of the Board of Directors shall be held upon notice to the directors. Notice of a special meeting need not be given to any director who submits a signed waiver of notice whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to him. Unless waived, notice of each special meeting of the Board of Directors, stating the time and place of the meeting, shall be given to each director by delivered letter, by telegram or by personal communication either over the telephone or otherwise, in each such case not later than the third day prior to the meeting, or by mailed letter deposited in the United States mail with postage thereon prepaid not later than the seventh day prior to the meeting. Notices of special meetings of the Board of Directors and waivers thereof need not state the purpose or purposes of the meeting. Section 2.11. Telephonic Meetings. A member of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or of such committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time, and participation in a meeting by such means shall constitute presence in person at such meeting. Section 2.12. Compensation. Directors shall receive such fixed sums and expenses of attendance for attendance at each meeting of the Board of Directors or of any committee and such salary as may be determined from time to time by the Board of Directors; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 2.13(a)Committees. The Board of Directors, by resolution adopted by a majority of the entire Board of Directors, may designate from among its members an Executive Committee and other committees, each consisting of three or more directors, and each of which, to the extent provided in the resolution, shall have all the authority of the Board of Directors, except that no such committee shall have authority as to the following matters: (a) The submission to shareholders of any action that needs shareholders' approval under the Business Corporation Law (b) The filling of vacancies in the Board of Directors or in any committee. (c) The fixing of compensation of the directors for serving on the Board of Directors or on any committee. (d) The amendment or repeal of the Bylaws, or the adoption of new Bylaws. (e) The amendment or repeal of any resolution of the Board of Directors which by its terms shall not be so amenable or repealable. The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent member or members at any meeting of such committee. Each such committee shall serve at the pleasure of the Board of Directors. Regular meetings of any such committee shall be held at such times and places as shall from time to time be fixed by such committee and no notice thereof shall be necessary. Special meetings may be called at any time by any officer of the Corporation or any member of such committee. Notice of each special meeting of each such committee shall be given (or waived) in the same manner as notice of a special meeting of the Board of Directors. A majority of the members of any such committee shall constitute a quorum for the transaction of business and the act of a majority of the members present at the time of the vote, if a quorum is present at such time, shall be the act of the committee. Section 2.13(b). Audit Committee. There shall be an Audit Committee of the Board of Directors which shall serve at the pleasure of the Board of Directors and be subject to its control. The Committee shall have at least three members, two of whom shall be independent outside directors. Members shall be appointed by the Chairman, subject to approval of the Board. The committee shall recommend to the Board of Directors the appointment or discharge of the corporation's independent auditors, shall review and approve the scope and plan of the annual audit, shall review the results of such audit, and shall perform such other duties as may be lawfully delegated to it from time to time by the Board of Directors. Section 2.13(c). Executive Compensation Committee. There shall be an Executive Compensation Committee of the Board of Directors which will serve at the pleasure of the Board of Directors and be subject to its control. The Committee shall have at least three members, all of whom shall be independent outside directors appointed by the Chairman, subject to the approval of the Board of Directors. The Committee shall approve the compensation of the executive officers of the company, and shall have such other duties as may be lawfully delegated to it from time to time by the Board of Directors. Section 2.14. Interested Directors. No contract or other transaction between the Corporation and one or more of its directors, or between the Corporation and any other corporation, firm, association or other entity in which one or more of the Corporation's directors are directors or officers, or have a substantial financial interest, shall be either void or voidable for this reason alone or by reason alone that such director or directors are present at the meeting of the Board of Directors, or of a committee thereof, which approves such contract or transaction, or that his or their votes are counted for such purpose. (1) If the material facts as to such director's interest in such contract or transaction and as to any such common directorship, officership or financial interest are disclosed in good faith or known to the Board of Directors or committee, and the Board of Directors or committee approves such contract or transaction by a vote sufficient for such purpose without counting the vote of such interested director or, if the votes of the disinterested directors are insufficient to constitute an act of the Board of Directors as defined in Section 708 of the Business Corporation Law, by unanimous vote of the disinterested directors; or (2) If the material facts as to such director's interest in such contract or transaction and as to any such common directorship, officership or financial interest are disclosed in good faith or known to the shareholders entitled to vote thereon, and such contract or transaction is approved by vote of such shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which approves such contract or transaction. ARTICLE III Officers Section 3.01 Election or Appointment; Number. The officers of the Corporation shall be elected or appointed by the Board of Directors. The officers shall be a President, a Secretary, a Treasurer, and such number of Vice Presidents, Assistant Secretaries and Assistant Treasurers, and such other officers, as the Board of Directors may from time to time determine. Any person may hold two or more offices at the same time, except the offices of President and Secretary. Any officer may, but no officer need, be chosen from among the Board of Directors. Section 3.02. Term. Subject to the provisions of Section 3.03 hereof, all officers shall be elected or appointed to hold office for the term for which he is elected or appointed or until his death and until his successor has been elected or appointed and qualified. The Board of Directors may require any officer to give security for the faithful performance of his duties. Section 3.03. Removal. Any officer elected or appointed by the Board of Directors may be removed by the Board of Directors with or without cause. The removal of an officer without cause shall be without prejudice to his contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. Regular meetings of any such committee shall be held at such times and places as shall from time to time be fixed by such committee and no notice thereof shall be necessary. Special meetings may be called at any time by any officer of the Corporation or any member of such committee. Notice of each special meeting of each such committee shall be given (or waived) in the same manner as notice of a special meeting of the Board of Directors. A majority of the members of any such committee shall constitute a quorum for the transaction of business and the act of a majority of the members present at the time of the vote, if a quorum is present at such time, shall be the act of the committee. Section 2.14. Interested Directors. No contract or other transaction between the Corporation and one or more of its directors, or between the Corporation and any other corporation firm, association or other entity in which one or more of the Corporation's directors are directors or officers, or have a substantial financial interest, shall be either void or voidable for this reason alone or by reason alone that such director or directors are present at the meeting of the Board of Directors, or of a committee thereof, which approves such contract or transaction, or that his or their votes are counted for such purpose. Section 3.04. Authority. The President shall be the chief executive officer of the. Corporation and shall direct the policy of the Corporation on behalf of the Board of Directors. The other officers shall have the authority, perform the duties and exercise the powers in the management of the Corporation usually incident to the offices held by them, respectively, and/or such other authority, duties and powers as may be assigned to them from time to time by the Board of Directors or the President. ARTICLE IV Capital Stock Section 4.01. Certificates of Stock. Certificates representing shares of the stock of the Corporation shall be in such form as shall be approved by the Board of Directors. Every certificate shall be signed by the President and the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer and sealed with the seal of the Corporation. Such seal may be a facsimile engraved or printed. There shall be entered upon the stock books of the Corporation the number of each certificate issued, the name of the person owning the shares represented thereby, the number of shares, and the date of issuance thereof. Section 4.02. Transfer of Stock. A stock book shall be kept at the principal office of the Corporation containing the names, alphabetically arranged, of all persons who are stockholders of the Corporation showing their places of residence, the number of shares of stock held by them respectively, the time when they respectively became owners thereof, and the amount paid thereon. Transfers of shares of the stock of the corporation shall be made only on the books of the Corporation by the holder of record thereof, or by his attorney thereunto duly authorized by a power of attorney executed in writing and filed with the Secretary, and upon the surrender of the certificate or certificates for such shares properly endorsed and accompanied by all necessary Federal and State stock transfer tax stamps. No stockholder, however, shall be entitled to any transfer of his stock in violation of any restrictions lawfully applicable thereto. Section 4.03. Registered Holders. The Corporation shall be entitled to treat and shall be protected in treating the persons in whose names shares or any warrants, rights or options stand on the record of shareholders, warrant holders, rights holders or option holders, as the case may be, as the owners thereof for all purposes and shall not be bound to recognize any equitable or other claim to, or interest in, any such share, warrant, right or option on the part of any other person, whether or not the Corporation shall have notice thereof, except as expressly provided otherwise by the statutes of the State of New York. Section 4.04. New Certificates. The Corporation may issue a new certificate for shares in the place of any certificate theretofore issued by it, alleged to have been lost or destroyed, and the Board of Directors may, in its discretion, require the owner of the lost or destroyed certificate, or his legal representatives, to give the Corporation a bond sufficient (in the judgment of the directors) to indemnify the Corporation against any claim that may be made against it on account of the alleged loss or destruction of any such certificate or the issuance of such new certificate. A new certificate may be issued without requiring any bond when, in the judgment of the directors, it is proper so to do. ARTICLE V Financial Notices to Shareholders Section 5.01. Dividends. When any dividend is paid or any other distribution is made, in whole or in part, from sources other than earned surplus, it shall be accompanied by a written notice (a) disclosing the amounts by which such dividend or distribution affects stated capital, capital surplus and earned surplus, or (b) if such amounts are not determinable at the time of such notice, disclosing the approximate effect of such dividend or distribution upon stated capital, capital surplus and earned surplus and stating that such amounts are not yet determinable. Section 5.02. Share Distribution and Changes. Every distribution to shareholders of shares, whether certificated or uncertificated, or a change of shares which affects stated capital, capital surplus or earned surplus shall be accompanied by a written notice (a) disclosing the amounts by which such distribution or change affects stated capital, capital surplus and earned surplus, or (b) if such amounts are not determinable at the time of such notice, disclosing the approximate effect of such distribution or change upon stated capital, capital surplus and earned surplus and stating that such amounts are not yet determinable. When issued shares are changed in any manner which affects stated capital, capital surplus or earned surplus, and no distribution to shareholders of any shares, whether certificated or uncertificated, resulting from such change is made, disclosure of the effect of such change upon the stated capital, capital surplus and earned surplus shall be made in the next financial statement covering the period in which such change is made that is furnished by the Corporation to holders of shares of the class or series so changed or, if practicable, in the first notice of dividend or share distribution or change that is furnished to such shareholders between the date of the change of shares and the next such financial statement, and in any event within six months of the date of such change. Section 5.03. Cancellation of Reacquired Shares. When reacquired shares other than converted shares are cancelled, the stated capital of the Corporation is thereby reduced by the amount of stated capital then represented by such shares plus any stated capital not theretofore allocated to any designated class or series which is thereupon allocated to the shares cancelled. The amount by which stated capital has been reduced by cancellation of reacquired shares during a stated period of time shall be disclosed in the next financial statement covering such period that is furnished by the Corporation to all its shareholders or, if practicable, in the first notice of dividend or share distribution that is furnished to the holders of each class or series of its shares between the end of the period and the next such financial statement, and in any event to all its shareholders within six months of the date of the reduction of capital. Section 5.04. Reduction of Stated Capital. When a reduction of stated capital has been effected under Section 516 of the Business Corporation Law, the amount of such reduction shall be disclosed in the next financial statement covering the period in which such reduction is made that is furnished by the Corporation to all its shareholders or, if practicable, in the first notice of dividend or share distribution that is furnished to the holders of each class or series of its shares between the date of such reduction and the next such financial statement, and in any event to all its shareholders within six months of the date of such reduction. Section 5.05. Application of Capital Surplus to Elimination of a Deficit. The Corporation may apply any part or all of its capital surplus to the elimination of any deficit in the earned surplus account, upon approval by vote of the shareholders. The application of capital surplus to the elimination of a deficit in the earned surplus account shall be disclosed in the next financial statement covering the period in which such elimination is made that is furnished by the Corporation to all its shareholders or, if practicable, in the first notice of dividend or share distribution that is furnished to holders of each class or series of its shares between the date of such elimination and the next such financial statement, and in any event to all its shareholders within six months of the date of such action. Section 5.06. Conversion of Shares. Should the Corporation issue any convertible shares, then, when shares have been converted, they shall be cancelled and disclosure of the conversion of shares during a stated period of time and its effect, if any, upon stated capital shall be made in the next financial statement covering such period that is furnished by the Corporation to all its shareholders or, if practicable, in the first notice of dividend or share distribution that is furnished to the holders of each class or series of its shares between the end of such period and the next such financial statement, and in any event to all its shareholders within six months of the date of the conversion of shares. ARTICLE VI Miscellaneous Section 6.01. Offices. The principal office of the Corporation shall be in The City of Albany, County of Albany, State of New York. The Corporation may also have offices at other places, within and/or without the State of New York. Section 6.02. Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its incorporation and the words "Corporate Seal New York" provided, that the form of such seal shall be subject to alteration from time to time by the Board of Directors. Section 6.03. Checks. All checks or demands for money shall be signed by such person or persons as the Board of Directors may from time to time determine. Section 6.04. Fiscal Year. The fiscal year of the Corporation shall be the calendar year ending on each December 31. Section 6.05. Books and Records. The Corporation shall keep correct and complete books and records of account and shall keep minutes of the proceedings of its shareholders, Board of Directors and each committee thereof, if any, and shall keep at the office of the Corporation in the State of New York or at the office of its transfer agent or registrar in the State of New York, a record containing the names and addresses of all shareholders, the number and class of shares held by each and the dates when they respectively became the owners of record thereof. Any of the foregoing books, minutes or records may be in written form or in any other form capable of being converted into written form within a reasonable time. Section 6.06. Duty of Directors. A director shall perform his duties as a director, including his duties as a member of any committee of the Board of Directors upon which he may serve, in good faith and with that degree of care which an ordinarily prudent person in a like position would use under similar circumstances. In performing his duties, a director shall be entitled to rely on information, opinions, reports, or statements including financial statements and other financial data, in each case prepared or presented by: (a) one or more officers or employees of the Corporation or of any other corporation of which at least fifty percentage of the outstanding shares of stock entitling the holders thereof to vote for the election of directors is owned directly or indirectly by the Corporation, whom the director believes to be reliable and competent in the matters presented, (b) counsel, public accountants or other persons as to matters which the director believes to be within such person's professional or expert competence, or (c) a committee of the Board of Directors upon which he does not serve, duly designated in accordance with a provision of the Certificate of Incorporation or these Bylaws, as to matters within its designated authority, which committee the director believes to merit confidence, so long as in so relying he shall be acting in good faith and with such degree of care which an ordinarily prudent person in a like position would use under similar circumstances, but he shall not be considered to be acting in good faith if he has knowledge concerning the matter in question that would cause such reliance to be unwarranted. A person who so performs his duties shall have no liability by reason of being or having been a director of the Corporation. Section 6.07. Indemnification of Directors and Officers. (a) The Corporation shall indemnify any person made, or threatened to be made, a party to an action or proceeding (other than one by or in the right of the Corporation to procure a judgment in its favor), whether civil or criminal, including an action by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise, which any Director or Officer of the Corporation served in any capacity at the request of the Corporation, by reason of the fact that he, his testator or intestate, was a Director of the Corporation ("Director"), or Officer of the Corporation appointed or elected by the Board of Directors ("Officer"), or served such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein, to the maximum extent permitted and in the manner prescribed by the Business Corporation Law. (b) The Corporation shall indemnify any person made, or threatened to be made, a party to an action by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he, his testator or intestate, is or was a Director or Officer of the Corporation, or is or was serving at the request of the Corporation as a Director or Officer of any other corporation of any type or kind, domestic or foreign, of any partnership, joint venture, trust, employee benefit plan or other enterprise, against amounts paid in settlement and reasonable expenses, including attorneys' fees, actually and necessarily incurred by him in connection with the defense or settlement of such action, or in connection with an appeal therein, to the maximum extent permitted and in the manner prescribed by the Business Corporation Law. (c) Expenses incurred by any party entitled to indemnification under this Section 6.07 in defending a civil or criminal action or proceeding shall be paid by the Corporation in advance of the final disposition of such action or proceeding to the maximum extent permitted and in the manner prescribed by the Business Corporation Law. (d) The Corporation shall pay the expenses (including attorney's fees) of any person made a witness in a civil or criminal action or proceeding, by reason of the fact that he is or was a Director or Officer of the Corporation, or serves or served any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan, or other enterprise in any capacity at the request of the Corporation, subject to any limitations required by the Business Corporation Law. (e) The Corporation shall pay the expenses (including attorney's fees) of any Director or Officer of the Corporation incurred in prosecuting or defending an action or proceeding to enforce any rights to indemnification or advancement of expenses granted under these bylaws or otherwise, subject to any limitations required by the Business Corporation Law. (f) The foregoing provisions of this section shall be deemed to be a contract between the Corporation and each Director and Officer of the Corporation who serves in such capacity at any time while this section and the relevant provisions of the Business Corporation Law are in effect, and any repeal or modification of this section or such provisions of the Business Corporation Law shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing as it relates to any action or proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts; provided, however, that the right of indemnification provided in this section shall not be deemed exclusive of any other rights to which any Director or Officer of the Corporation may now be or hereafter become entitled apart from this section, whether by a resolution of shareholders, a resolution of Directors, or an agreement providing for such indemnification. Subject to the foregoing, wherever this section refers to the Business Corporation Law, it shall mean the Business Corporation Law of the State of New York, as the same exists or may hereafter be amended. The rights of a Director or Officer hereunder shall continue after such person has ceased to be a Director or Officer and shall inure to the benefit of such person's heirs, executors, administrators and personal representatives. Section 6.08. When Notice or Lapse of Time Unnecessary; Notices Dispensed with when Delivery Is Prohibited. Whenever, under the Business Corporation Law or the Certificate of Incorporation of the Corporation or these Bylaws or by the terms of any agreement or instrument, the Corporation or the Board of Directors or any committee thereof is authorized to take any action after notice to any person or persons or after the lapse of a prescribed period of time, such addition may be taken without notice and without the lapse of such period of time, if at any time before or after such action is completed the person or persons entitled to such notice or entitled to participate in the action to be taken or, in the case of a shareholder, by his attorney-in-fact, submit a signed waiver of notice of such requirements. Whenever any notice or communication is required to be given to any person by the Business Corporation Law, the Certificate of Incorporation of the Corporation or these Bylaws, or by the terms of any agreement or instrument, or as a condition precedent to taking any corporate action and communication with such person is then unlawful under any statute of the State of New York or of the United States or any regulation, proclamation or order issued under said statutes, then the giving of such notice or communication to such person shall not be required and there shall be no duty to apply for license or other permission to do so. Any affidavit, certificate or other instrument which is required to be made or filed as proof of the giving of any notice or communication required under the Business Corporation Law shall, if such notice or communication to any person is dispensed with under this paragraph, include a statement that such notice or communication was not given to any person with whom communication is unlawful. Such affidavit, certificate or other instrument shall be as effective for all purposes as though such notice or communication had been personally given to such person. Whenever any notice or communication is required or permitted to be given by mail, it shall, except as otherwise expressly provided in the Business Corporation Law, be mailed to the person to whom it is directed at the address designated by him for that purpose or, if none is designated, at his last known address. Such notice or communication is given when deposited, with postage thereon prepaid, in a post office or official depository under the exclusive care and custody of the United States post office department. Such mailing shall be by first class mail except where otherwise required by the Business Corporation Law. Section 6.09. Entire Board of Directors. As used in these Bylaws, the term entire "Board of Directors" means the total number of directors which the Corporation would have if there were no vacancies. Section 6.10. Amendment of Bylaws. These Bylaws may be amended or repealed and new Bylaws adopted by the Board of Directors or by vote of the holders of the shares at the time entitled to vote in the election of any directors, except that any amendment by the Board changing the number of directors shall require the vote of a majority of the entire Board of Directors and except that any Bylaw adopted by the Board of Directors may be amended or repealed by the shareholders entitled to vote thereon as provided in the Business Corporation Law. If any Bylaw regulating an impending election of directors is adopted, amended or repealed by the Board of Directors, there shall be set forth in the notice of the next meeting of shareholders for the election of directors the Bylaw so adopted, amended or repealed, together with a concise statement of the changes made. Section 6.11. Section Headings and Statutory References. The headings of the Articles and Sections of these Bylaws have been inserted for convenience of reference only and shall not be deemed to be a part of these Bylaws. Brd.459 EX-10.19 3 1 EXHIBIT 10.19 TERM NOTE $5,500,000.00 March 29, 1996 Albany, New York FOR VALUE RECEIVED, FIRST ALBANY COMPANIES INC., a domestic corporation with its principal executive office and place of business located at 30 South Pearl Street, Albany, New York 12207 (the "Borrower") promises to pay to the order of ONBANK & TRUST CO., a domestic banking corporation with its principal executive office located at Syracuse, New York (the "Lender"), at 80 State Street, Albany, New York 12207, or such other place as the Lender may, from time to time, designate in writing, the principal sum of Five Million Five Hundred Thousand and no/100 ($5,500,000.00) Dollars together with interest on the principal balance from time to time unpaid hereon from the date hereof, at a fluctuating per annum interest rate (the "Note Rate") in the following manner: Interest only on the unpaid principal amount hereof, at the Note Rate, shall be due and payable on April 1, 1996. On the first day of each month thereafter, commencing May 1, 1996 and concluding April 1, 2000, the Borrower shall make payments of interest at the Note Rate together with payments of principal calculated in accordance with a four (4) year straight line amortization schedule. In addition, the entire unpaid principal balance hereof, together with accrued interest thereon and accrued late charges, if any, and all other sums due hereunder shall be finally due and payable on April 1, 2000. The Note Rate shall be equal, at all times, to the average yield to an investor for United States Treasury Securities adjusted to a constant maturity of ninety (90) days (the "Index") plus two and one-half (2.5%) percent. The Note Rate shall be initially established by reference to the most recent index published by the Federal Reserve Board prior to the closing and, thereafter, the Note Rate shall be adjusted on the first day of each calendar quarter (each such date being an "Adjustment Date") with reference to the most recent Index published by the Federal Reserve Board prior to each Adjustment Date. All payments hereunder shall be applied first to the payment of accrued late payments, if any, then to the payment of interest at the aforesaid rate on the principal amount remaining unpaid and the balance, if any, shall be applied in reduction to principal. Interest shall be computed on the basis of a year of 360 days for the actual number of days elapsed and shall accrue from the date of advance of funds until receipt of payment by the Lender. This Note may be prepaid without penalty at any time. In the event that any payment required by this Note shall become overdue for a period in excess of fifteen (15) days, a late charge of six (.06) cents for each One ($1.00) dollar so overdue may be charged by the holder hereof for the purpose of defraying the expense incident to handling such delinquent payment. The Borrower agrees that in the event of a happening of one or more of the following, each of which shall be an "Event of Default", and the expiration of fifteen (15) days from the date of Borrower's actual receipt of written notice of said Event(s) of Default, provided said Event(s) of Default are not cured or substantially remedied within said fifteen (15) days, (1) the breach of any of the covenants and agreements contained in this Note or in the GENERAL SECURITY AGREEMENT dated on even date herewith from the Borrower to the Lender (the "Agreement") which secures this Note; (2) the occurrence of an event of default pursuant to the Agreement;(3) the dissolution of the Borrower; (4) any petition of bankruptcy being filed by or against the Borrower hereof and said petition, if involuntary, is not dismissed within six (6) months from the date of filing thereof; (5) the making by the Borrower of an assignment for the benefit of creditors then the whole of the principal sum or any part thereof, and of other sums of money secured by the Agreement, shall, forthwith or thereafter, at the option of the Lender become immediately due and payable without demand or notice. All of the covenants, agreements, terms and conditions of the Agreement are hereby incorporated herein with the same and effect as if set forth at length. The Borrower shall deliver to the Lender, so long as the indebtedness evidenced by this Note shall be outstanding, (1) within 120 days (120) of its fiscal year end, an audited financial statement (Form 10K) for Borrower prepared by Borrower's Certified Public Accountant; and (2) within forty- five (45) days of the end of each fiscal quarter an interim financial statement (Form 10Q). The Borrower shall maintain, at all times, a minimum net capital equal to three (3) times the minimum net capital as calculated and defined by the Securities and Exchange Commission's Uniform Net Capital Rule (Rule 15C 3- 1). The Borrower shall not grant any security interest in the Collateral (as that term is defined in the Agreement) without the prior written approval of the Lender, which approval may be withheld in the exercise of the Lender's sole discretion. The Borrower shall maintain, with respect to the Collateral (as that term is defined in the Agreement), a physical hazard insurance policy providing insurance coverage against loss or damage to the Collateral by fire and any of the risk covered by 2 insurance of the type now known as "all risk coverage" in an amount not less than the principal balance of the loan evidenced by this Note. All such insurance maintained by the Borrower shall name the Lender as an additional insured, shall be non-cancelable and non-amendable without thirty (30) days written notice to the Lender, and shall be in the form and substance satisfactory to the Lender and its counsel. Duplicate originals or certified copies of each such policy of insurance shall be delivered to the Lender upon the execution of this Note and renewal certificates therefor shall be delivered to the Lender by the Borrower at least thirty (30) days prior to the expiration date of each such policy. Coinsurance is not permitted. Notwithstanding anything to the contrary herein contained, to the extent that the total amount of interest received in any year exceeds the maximum rate permitted by law, then the amount so determined to be in excess shall be applied in reduction of principal of this Note. This Note may not be changed or terminated orally. Presentment for payment, notice of dishonor, protest and notice of protest are hereby waived. No waiver of any provision hereof shall be enforceable against the Lender unless in writing, signed by an officer of the Lender, and shall be limited solely to the one event specified therein. In the event this Note is placed with an attorney for collection, the Borrower shall pay all reasonable attorney fees and expenses incurred by the Lender in connection therewith. IN WITNESS WHEREOF, the undersigned has executed this Note the day and year first above written. FIRST ALBANY COMPANIES INC. By: /s/ David Cunningham ------------------------ David J. Cunningham Senior Vice President Chief Financial Officer STATE OF NEW YORK ) ) SS.: COUNTY OF ALBANY ) On this 29th day of March, 1996, before me personally came David J. Cunningham, to me known, who being by me duly sworn, did depose and say that he is a Senior Vice President of FIRST ALBANY COMPANIES INC., the corporation described in, and which executed the above instrument, and that he signed his name thereto by order of the board of directors of said corporation as the act and deed of said corporation. Notary Public /s/ Patrick J. Mackrell GENERAL SECURITY AGREEMENT In consideration of one or more loans, letters of credit or other financial accommodations made, issued or extended by ONBANK & TRUST CO., a domestic banking corporation with its principal executive office located in Syracuse, New York and a place of business at 80 State Street, Albany, New York 12207 (the "Bank") to the undersigned (the "Borrower") , the Borrower hereby agrees that the Bank shall have the rights, remedies and benefits hereinafter set forth. The term "Liabilities" shall mean and include any and all indebtedness, obligations and liabilities of any kind of the Borrower to the Bank or to others to the extent of their participations granted or interest therein created or acquired by them or for them by the Bank, now or hereafter existing, arising directly between the Borrower and the Bank or acquired outright, conditionally, or as collateral security from another by the Bank, absolute contingent, joint and/or several, secured or unsecured, due or not due, liquidated or unliquidated, arising by operation of law or otherwise, direct or indirect, including but not limiting the generality of the foregoing, indebtedness, obligations or liabilities to the Bank of the Borrower regardless of how or when incurred. The term "Collateral" shall mean and include all of the Borrower's furniture, trade fixtures, equipment, including, but not limited to, machinery, of every kind, nature and description, including but not limited to the computers and computer equipment, wherever located, and to the full extent of Borrower's interest therein, whether now owned or hereafter acquired including any substitutions, additions, and replacements thereof. The term "Securities Collateral" shall mean and include the securities described on Schedule "All attached hereto and made part hereof consisting of one (1) pages. In order to secure repayment of the Liabilities the Borrower hereby grants the Bank a security interest in the Collateral and Securities Collateral. At any time and from time to time, upon the request of the Bank, the Borrower will give, execute, deliver, file and/or record any notice, statement, instrument, document, agreement or other papers that may be necessary or desirable, or that the Bank may request, in order to create, preserve, perfect or validate any security interest granted pursuant hereto or to enable the Bank to exercise and enforce its rights hereunder or with respect to such security interest, and, further, permit representatives of the Bank, at any time, upon reasonable notice to the Borrower, to inspect the Collateral. The right is expressly granted to the Bank, at its discretion, to file in those jurisdictions where the same is permitted one or more financing statements under the Uniform Commercial Code signed only by the Bank, naming the Borrower as debtor and the Bank as secured party, and indicating therein the types or describing the items of Collateral herein specified. Without the prior written consent of the Bank, the Borrower will not file or authorize or permit to be filed in any jurisdiction any such financing or like statement in which the Bank is not named as sole secured party. The Borrower hereby acknowledges that the security interests) previously granted by the Borrower to The Hudson City Savings Institution ("Hudson City") have been or will be assigned by the Bank and specifically consents to the assignment of any and all financing statements filed by or on behalf of Hudson City to the Bank. The Borrower specifically consents that the security interest in the Collateral shall apply as security for the Liabilities. The Bank shall have the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code (whether or not the Code is in effect in the jurisdiction where the rights and remedies are asserted). In addition, with respect to the Collateral, or any part thereof, the Bank may, in the event of default, sell or cause the Collateral to be sold in the City of Albany, New York, or elsewhere, in one or more sales or parcels, at such price as the Bank may deem best, and for cash or on credit or for future delivery, without assumption of any credit risk, all or any portion of the Collateral, at public or private sale, without demand or performance or notice of intention to sell or of time or place of sale (except such notice as is required by applicable statute and cannot be waived) and the Bank or anyone else may be the purchaser of any or all of the Collateral so sold and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, any such demand, notice or right and equity being hereby expressly waived and released. The Borrower will pay to the Bank all expenses incidental to the enforcement of any of the provisions hereof, including but not limited to attorney's fees, expenses incurred by the Bank in connection with repossession or any actual or attempted sale of any of the Collateral or receipt of the proceeds thereof, and for the care of the Collateral and defending or asserting the rights and claims of the Bank in respect thereof, by litigation or otherwise, including expenses of insurance; and all such expenses shall be Liabilities within the terms of this agreement. No delay on the part of the Bank in exercising any power or right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any power or right hereunder preclude other or further exercise thereof or the exercise of any 2 other power or right. No waiver shall be enforceable against the Bank unless in writing, signed by an officer of the Bank, and shall be limited solely to the one event specified therein. The rights, remedies and benefits herein expressly specified are cumulative and not exclusive of any rights, remedies or benefits which the Bank may otherwise have. No provision hereof shall be modified or limited except by a written instrument signed by an officer of the Bank, expressly referring hereto and to the provision so modified or limited. This agreement shall be binding upon the assigns or successors of the Borrower, and shall inure to the benefit of and be enforceable by the Bank, its successors, transferees and assigns; shall constitute a continuing agreement, applying to all future as well as existing transactions; and if all transactions between the Bank and the Borrower shall be at any time terminated, shall be equally applicable to any new transactions thereafter. Unless the context otherwise requires all terms used herein which are defined in the Uniform Commercial Code shall have the meaning therein stated. If this agreement shall be terminated or revoked by operation of law, the Borrower will indemnify and save the Bank harmless from any loss which may be suffered or incurred by the Bank in acting hereunder prior to the receipt by the Bank, its successors, transferees or assigns of notice of such termination or revocation. In the event that any part of this agreement is determined by any court of competent jurisdiction to be unenforceable, the balance of this agreement shall remain in full force and effect unless the Bank gives the Borrower written notice by registered mail, return receipt requested, of its intention to terminate this agreement, in which event all of the obligations of the Borrower to the Bank shall immediately become due and payable. The Borrower warrants and represents that all Collateral in which a security interest is or will be granted to the Bank is and will at all times be valid and subsisting, free and clear of all liens and encumbrances, except the one created hereunder; is and will be without defenses, offsets and counterclaims; that the Borrower will defend the title and security interest at its own cost and expense; will furnish the Bank with such financial statements as the Bank may reasonably request; will keep the collateral in good condition and repair; will not assign or otherwise dispose of the Collateral; will furnish the Bank from time to time, upon the request of the Bank, a list of the Collateral specifying the cost, acquisition date, and location of each item; will keep the Collateral fully insured against all risk and procure an extended coverage rider and a rider providing that in the event of a loss, the proceeds then shall be payable to the Bank, and said insurance policy or policies shall not be cancelable unless on thirty (30) days written notice to the Bank; 3 that all representations are continuing in nature; that the Borrower is authorized to execute this agreement; that the Borrower is in good standing in the state of its incorporation, is authorized and licensed to do business in every state where it does business, that the execution of this agreement does not violate its certificate of incorporation, its by-laws or any other agreement. This agreement has been executed in the State of New York and shall be interpreted, and the rights and liabilities of the parties hereto determined, in accordance with the laws of State of New York. As part of the consideration for the Bank making any loans hereunder, the Borrower hereby agrees that all actions or proceedings arising directly or indirectly from or touching upon this agreement shall be litigated only in courts having a situs within of the State of New York, and the Borrower hereby consents to the jurisdiction of any local, state or federal court located within the State of New York. Notwithstanding any term, provision or covenant to the contrary contained herein, upon receipt of evidence, satisfactory to the Bank and its counsel, that the security interest granted herein has been duly perfected as a first security interest and lien in the Collateral in all jurisdictions in which the Collateral is located, the Bank shall terminate and release its security interest in the Securities Collateral. This agreement shall be a continuing agreement and shall apply to all future as well as existing transactions. Dated: March 29, 1996 Albany, New York FIRST ALBANY COMPANIES INC. By: /s/ David J. Cunningham ----------------------- David J. Cunningham Senior Vice President Chief Financial Officer AGREED TO THIS 29th DAY OF MARCH, 1996, ONBANK & TRUST CO. By: ____________________ Robert G. Burke Vice President 4 ESCROW AGREEMENT AGREEMENT made this 29 day of March, 1996 by and between FIRST ALBANY COMPANIES INC., a domestic corporation with its principal executive office and on office for the transaction of business located at 30 South Pearl Street, Albany, New York 12207 (the "Assignor"), ONBANK & TRUST CO., a domestic banking corporation with its principal executive office located in Syracuse, New York and an office for transaction of business located at 80 State Street, Albany, New York (the "Assignee"), and FIRST ALBANY CORPORATION, a domestic corporation with its principal executive office and an office for the transaction of business located at 30 South Pearl Street, Albany, New York 12207 (the "Escrow Agent"). W I T N E S S E T H WHEREAS, the Assignor is indebted to the Assignee in the amount of Five Million Five Hundred Thousand and 00/100 ($S,500,000.00) Dollars as evidenced by the TERM NOTE (the "Note") given by the Assignor to the Assignee, for valuable consideration, on even date herewith (the "Loan"); and WHEREAS, in order to induce the Assignee to make one or more loans to the Assignee, the Assignor has executed and delivered a GENERAL SECURITY AGREEMENT, dated on even date herewith (the "Agreement"), whereby the Assignor has granted a security interest in certain property of the Assignor as identified and described therein. NOW, the parties hereto, for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, agree as follows that: 1. The parties have delivered to Escrow Agent an executed duplicate original of the Agreement, in which the Assignor has pledged and granted to the Assignee a security interest in, inter alia, the securities held by Assignor in First Albany Corporation account number 3301-1020, consisting of the securities described on Schedule "A" attached hereto and made part hereof (the "Securities Collateral"), as security for a loan from the Assignee to the Assignor. The parties acknowledge that the Collateral has been assigned and pledged to the Assignee by the Assignor, that the Assignee has a security interest therein and that the Collateral is being held by the Escrow Agent. 2. Subject to Section 3 hereof the Escrow Agent shall not be authorized to sell the securities constituting the Securities Collateral or to buy new securities without prior written consent of the Assignor and the Assignee. The Escrow Agent has no liability to either the Assignor or the Assignee with respect to fluctuations in the value of the securities constituting the Securities Collateral, or to maintain any minimum value of the securities constituting the Securities Collateral. 3. Unless restrained by court order or stayed by operation of bankruptcy law, upon receipt of written notice from the Assignee that an event of default (as defined in the Agreement or in the Note) has occurred, the Escrow Agent will immediately 2 transfer all Securities Collateral to the Assignee in cash or in kind (less customary brokerage liquidation expenses, if any) irrespective of direction subsequent to the date hereof from the Assignor or its representatives to the contrary. 4. The Assignor has heretofore delivered to the Escrow Agent all necessary documents of transfer or stock powers and authorizations to transfer the Securities Collateral to the Assignee at any future time, and the Escrow Agent will not require any other written documentation or release from the Assignee other than the written notice referred to in paragraph 2 above, and a simple receipt from the Assignee for Securities Collateral following, or simultaneously with, tender of possession, in order to transfer the Securities Collateral to the Assignee. The Escrow Agent waives any right of set-off it may have against the Securities Collateral senior to that of the Assignee. 5. Until receipt of written notice from the Assignee, all income generated from the Securities Collateral will be reported pursuant to the tax identification number for the Assignor. All dividends and interest received by the Escrow Agent on the Securities Collateral will be held by the Escrow Agent as part of the Securities Collateral. 6. The Assignor and the Escrow Agent hereby represent and warrant that the Securities Collateral is not subject to any claim pledge, assignment or other encumbrance except as set forth in this Agreement. 3 7. The Escrow Agent agrees to make appropriate notations on its records (including computer software) to clearly indicate that the Securities Collateral has been assigned and pledged to the Assignee, and the Assignee has a first security interest in and lien on said Securities Collateral which has been perfected by delivery of the Securities Collateral to the Escrow Agent. Said Securities Collateral will not be commingled with any 'other account of the Assignor, but shall remain segregated subject to the terms of and conditions of the Agreement. 8. The Escrow Agent shall have no duties or responsibilities other than those expressly set forth herein. 9. The Escrow Agent may rely conclusively and shall be protected in acting upon any order, notice, demand, certification, statement, instrument, report or other paper or document (not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth and acceptability of any information therein contained) which is believed by the Escrow Agent to be genuine and to be signed or presented by the proper person or persons. The Escrow Agent shall not be bound by any notice or demand, or any waiver, modification, termination or rescission of this agreement or any of the terms hereof, unless evidenced by a writing delivered to the Escrow Agent signed by all other parties hereto and, if the duties or rights of the Escrow Agent are affected, unless it shall give its prior written consent thereto. 10. The Escrow Agent shall be indemnified and held harmless 4 by the Assignor from and against any and all expenses (including reasonable counsel fees and disbursements and including any liability for taxes and for penalties in respect of taxes, or investment income on the Securities Collateral), or loss suffered by the Escrow Agent in connection with any action, suit or other proceeding involving any claim, or in connection with any claim or demand which in any way, directly or indirectly, arises out of or relates to this Agreement, the services of the Escrow Agent hereunder, the Securities Collateral or other property held by it hereunder or any income earned from investment of such Securities Collateral, unless it shall have been judicially determined that such claim or demand arises out of gross negligence of the Escrow Agent. For the purposes hereof, the term "expense" or "loss" shall include all amounts paid or payable to satisfy any claim, demand, action, suit or proceeding settled with the express written consent of the Escrow Agent, and all costs and expenses, disbursements, paid or incurred in investigating or defending against any such claim, demand, action, suit or proceeding. ii. It is understood and agreed that should any dispute arise with respect to the payment and/or ownership or right of possession of the Securities Collateral and earnings thereon, the Escrow Agent is authorized and directed, subject to the provisions contained herein, to retain in its possession, without liability to anyone, all or any part of said Securities Collateral and payments, thereon until such dispute shall have been settled either by mutual agreement by the parties concerned 5 or by the final order, decree or judgment of a court or other tribunal of competent jurisdiction in the United States of America and time for appeal has expired and no appeal has been perfected, but the Escrow Agent shall be under no duty whatsoever to institute or defend any such proceedings. 12. The Escrow Agent may resign at any time by giving fifteen (15) days written notice to the other parties hereto in which case the Securities Collateral shall be delivered to the Assignee.- with all necessary documents of transfer, or stock powers and authorizations to effect transfer of the Securities Collateral to the Assignee as collateral for the Loan. 13. Notwithstanding anything to the contrary contained herein, the Escrow Agent shall disburse and/or release the Securities Collateral or any portion thereof, pursuant to the terms of any joint written order signed by duly authorized officer of the Assignor and a duly authorized officer of the Assignee. 14. This agreement shall terminate automatically on the first to occur of (i) the disposition of the Securities Collateral and all earnings thereon in accordance with this Agreement or (ii) the payment of the Loan. This Agreement may also be terminated by written notice to the Escrow Agent duly executed by the Assignor and the Assignee that this Agreement has been terminated. Unless written notice is received by the Escrow Agent that an event of default has occurred, in the event of termination all Securities Collateral, including all earnings 6 thereon, shall be disbursed to the Assignor. 15. This Agreement may be executed in several counterparts, each of which shall be considered a legal original for all purposes. Any fully signed counterpart may be introduced into evidence in any action or proceeding without having to produce the others. 16. Any notices required or permitted to be given hereunder shall be: (i) given by registered or certified mail, postage prepaid, return receipt requested, or (ii) personally delivered or (iii) forwarded by overnight courier service (iv) or by facsimile, transmission confirmed, in each instance addressed to the addresses set forth below or facsimile numbers (or such other addresses as the parties may for themselves designate in writing as provided herein for the purpose of receiving notices hereunder); IF TO THE ASSIGNOR: First Albany Companies Inc. 30 South Pearl Street Albany, New Attn: David J. Cunningham Facsimile: (518) 447-8068 IF TO THE ASSIGNEE: OnBank & Trust Co. 80 State Street Albany, New York 12207 Attn: Commercial Credit Department Facsimile: (518) 432-5518 7 IF TO THE ESCROW AGENT: First Albany Corporation 30 South Pearl Street Albany, New York 12207 Attn: Michael R. Lindburg, Esq. Facsimile: (518) 447-8068. All notices shall be in writing and shall be deemed given upon actual delivery. IN WITNESS WHEREOF, the undersigned parties hereto have signed this Agreement as of the 29th day of March, 1996. FIRST ALBANY COMPANIES INC. BY:________________________________ David J. Cunningham Senior Vice President Chief Financial Officer FIRST ALBANY CORPORATION BY:________________________________ David J. Cunningham Senior Vice President Chief Financial Officer ONBANK & TRUST CO. BY:________________________________ Robert G. Burke Vice President PARTICIPATION AGREEMENT THIS AGREEMENT made the 29 day of March, 1996, between OnBank & Trust Co., a New York banking corporation, located and having its principal place of business at 80 State Street, Albany, New York 12201, hereinafter referred to as "OnBank", and The Hudson City Savings Institution, a New York banking corporation, located and having its principal place of business at One Hudson City Centre, Hudson, New York 12534, hereinafter referred to as "Hudson", WHEREAS, the above parties desire to participate in the funding of a loan to First Albany Companies Inc. in the proportions hereinafter set forth which loan shall be evidenced by a certain note in the principal amount of Five Million Five Hundred Thousand and 00/100 Dollars ($5,500,000.00), a copy of which is attached hereto as Exhibit A, hereinafter referred to as the "Note", running from First Albany Companies Inc. to OnBank, and which Note shall be secured by a security interest in all furniture, fixtures, machinery and equipment of First Albany Companies Inc., as evidenced by a general Security Agreement ("Agreement") , a copy of which is attached hereto as Exhibit B, now owned or hereafter acquired, and wheresoever located, including all proceeds therefrom, and WHEREAS, said Lenders are authorized by law and by their governing Boards to grant this loan, NOW, THEREFORE, in consideration of One Dollar ($1.00) lawful money of the United States, each to the other in hand paid, receipt and sufficiency whereof is hereby acknowledged, and the covenants and agreements herein contained, the parties hereto do hereby mutually covenant and agree as follows: 1. The principal amount of the Note to be granted to First Albany Companies Inc. shall be in the sum of $5,500,000.00 and the participation of each of the parties hereto shall be as follows: OnBank 50% or $2,750,000.00 The Hudson City Savings Institution 50% or $2,750,000.00 TOTAL 100% or $5,500,000.00 The parties hereto each agree to make these funds available at the loan closing, provided, however, that the attorneys for each of the parties shall be fully satisfied that First Albany Companies Inc. is in compliance with all of the terms and conditions of the commitment letters, has executed and/or delivered all documents required in connection with this loan, and is not otherwise in default. The investment made by each of said parties hereto shall not be junior or subordinate one to the other, but shall be equal and coordinate in lien. 2. The ownership rights of Hudson as set forth herein shall not in any way be affected by any rights of any secured or unsecured creditor of OnBank, including any trustee in bankruptcy, nor shall same in any manner be considered an asset of OnBank. 3. The Note and Security Agreement shall run to and be taken in the name of OnBank and the parties hereto are to participate as aforesaid in the proportion of such original principal amount or any reduced amount from time to time outstanding. It is agreed by the parties hereto that this loan shall be serviced by OnBank without a servicing fee. In this regard, OnBank will handle all collections and will keep all records thereof in its normal course of business, which records, among other things, shall reflect the interest of the parties hereto in the Note in the manner satisfactory to the examining authority. Such records shall be accessible for inspection by Hudson at all reasonable times during business hours. In the event it is necessary for OnBank to incur any out-of-pocket expenses during the course of servicing the loan, OnBank shall consult with Hudson prior to incurring such expenses, such expenses shall be borne equally by the parties and Hudson shall pay to OnBank its proportionate share of such out-of-pocket expenses upon request. 4. In the event of any default under the terms and conditions of the said Note or Security Agreement, OnBank will immediately notify Hudson of such default and, after consultation with Hudson, all appropriate and commercially reasonable steps will be taken to immediately remedy such default; if such default is not cured, appropriate proceedings shall be instituted by OnBank for the benefit of both parties hereto to include collecting the amount due and/or exercising the rights granted under the Security Agreement; in the event of repossession of the collateral pledged by First Albany Companies Inc., OnBank agrees to take possession of the collateral in its name and to hold the same in trust in proportion to the respective unpaid balances of OnBank's and Hudson's shares of the loan. OnBank agrees to consult with Hudson regarding collection, safeguarding and disposition of the collateral and to act in a commercially reasonable manner in this regard. Any monies received from disposition of the collateral (after deduction of necessary expenses incurred in connection with the collection, safeguarding and disposition of the collateral) shall be paid to OnBank and Hudson in equal shares. No distribution of monies shall be made to one of the parties, without the other party also receiving the same amount, to be paid at the same time. 5. If requested, each of the parties hereto shall receive certified true copies of the Note and Security Agreement, as well as applicable certificates of insurance and also copies of all other documents executed by First Albany Companies Inc. and/or any of its subsidiaries, agents, attorneys or other representatives in connection with the loan. 6. OnBank shall maintain possession of the original Note and Security Agreement and all other original instruments, documents, agreements and policies of fire and other hazard insurance in connection with this loan, as a trustee for the parties pursuant to this Agreement. 7. OnBank agrees to use its best efforts to collect all sums due in accordance with the terms of the Note, Security Agreement, and all agreements supplemental thereto, to act in a commercially reasonable manner and to receive same for the pro rata benefit of the parties hereto, including any and all interest or other payments on account of income, and any and all amortization or other payments on account of principal, and any other funds paid to it in connection with the Note and Security Agreement, and to promptly remit to Hudson its proportionate share. 8. OnBank shall consult with Hudson regarding all management decisions and shall not take any action in this regard (except for normal loan servicing) without first consulting Hudson, and shall not, without the prior written consent of Hudson, make or consent to any modification or alteration of the terms of the Note, Security Agreement or any other loan documents, or make or consent to any release, substitution or exchange of the collateral. 9. The parties acknowledge that the current indebtedness owing by First Albany Companies Inc. to Hudson shall be paid in full out -of the proceeds of this new loan. If requested by OnBank, and after payment in full by First Albany Companies Inc. to Hudson of all amounts due on the current outstanding obligation of First Albany Companies Inc., Hudson agrees to assign to OnBank, for the purposes of this loan, all UCC-1 filings made pursuant to the provisions of 1 previous Security Agreements given to Hudson by First Albany Companies Inc. and also by First Albany Corporation. Such assignments will not effect Hudson's rights pursuant to this Participation Agreement. 10. No party hereto makes any warranty of any kind, express or implied, with respect to the Note and no party shall be liable to the other for any loss not due to its own negligence. Specifically, and without limiting the above, Hudson makes no warranties or representations with respect to the validity of any UCC-1 statements previously filed by Hudson which are to be assigned to OnBank, and neither party shall have any liability to the other with respect to any claim that such documents were not properly filed and/or that Hudson does not have a perfected security interest in the collateral previously pledged to Hudson by First Albany Companies Inc. and/or First Albany Corporation pursuant to previous Security Agreements. ii. OnBank shall forward to Hudson copies of any and all correspondence, demands, notices or other pertinent information regarding the condition of the loan and shall provide Hudson with monthly status reports regarding the payment history of the loan. 12. This Agreement, the Note and Security Agreement, or any part thereof or interest therein, shall not be assigned, sold, or in any manner pledged as collateral by either party without the express written consent of the other party. the 13. This Agreement contains the entire- agreement between parties and the same cannot be modified or changed, except by an instrument in writing executed on behalf of the parties hereto in like manner. This Agreement effects only the rights of the parties hereto and no rights shall arise herefrom for the benefit of any other party. No other person or entity, other than the parties hereto shall be entitled to rely upon any of the terms hereof. 14. Any notices or demands required by this Agreement shall be in writing and delivered personally or mailed to the party entitled to such notice or demand at the address set forth above, opposite its name, or at such other address as any party may notify the others in writing. Such notices shall be directed as follows: ONBANK HUDSON OnBank & Trust Co. The Hudson City Savings Institution 80 State Street One Hudson City Centre P.O. Box 1191 P.O. Box 76 Albany, NY 12201-1191 Hudson, New York 12534 Att: Mr. Robert G. Burke, Att: Mr. Sidney D. Richter, Vice-President Senior Vice President IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers the day and year first above written. ONBANK & TRUST CO. THE HUDSON CITY SAVINGS INSTITUTION By:___________________________ By:_____________________________________ ROBERT G. BURKE, WILLIAM J. MAY Vice President Commercial Loan Officer STATE OF NEW YORK : Ss.: COUNTY OF ALBANY : On this 29th day of March, 1996, before me personally came WILLIAM J. MAY, to me known, who, being by me duly sworn, did depose and say that he resides in Saratoga, New York; that he is a Commercial Loan Officer at The Hudson City Savings Institution, the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Trustees of said corporation. ________________________ Notary Public STATE OF NEW YORK : Ss.: COUNTY OF ALBANY : On this 29th day of March, 1996, before me personally came ROBERT G. BURKE, to me known, who, being by me duly sworn, did depose and say that is the Vice President of OnBank & Trust Co., the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. ________________________ Notary Public EX-10.20 4 EXHIBIT 10.20 SUBORDINATED LOAN AGREEMENT Subordinated Loan Agreement dated as of September 16, 1996 between First Albany Corporation, a New York corporation (the "Company"), and Sharon M. Duker (the "Lender"). WITNESSETH: 1. CERTAIN DEFINITIONS. All terms not specifically defined in this Agreement shall be construed in accordance with the Act, the Rules and Regulations promulgated thereunder, and the Constitution, Rules and Regulations of the Exchange. As used in this Agreement: "Act" means the Securities Exchange Act of 1934, as amended from time to time. "Aggregate Debit Items" means aggregate debit items of the Company as defined in Exhibit A to Rule 15c3-3 as in effect as of the date any determination is made thereunder. "Aggregate Indebtedness" means aggregate indebtedness of the Company as defined in subparagraph (c) (1) of Rule 15c3-1 as in effect as of the date any determination is made thereunder. "CEA" means the Commodity Exchange Act. "CFTC" means the Commodities Futures Trading Commission. "Change of Control" has the meaning ascribed to it in Section 8 hereof. "Commission" means the Securities and Exchange Commission or any agency of the United States succeeding to its authority. "FOCUS Report" means Form X-17A-5 promulgated under Section 17 of the Act and Rule 17a-5. "Effective Date" means the date an executed copy of this Agreement is approved by the Exchange. "Event of Acceleration" means any event described in Section 7.B of this Agreement. "Event of Default" means any event described in Section 7.A of this Agreement. I "Examining Authority" means the Exchange, provided, however, that, upon termination of the Company as a member firm of the Exchange, the term Examining Authority shall refer to such regulatory body having responsibility for inspecting or examining the Company for compliance with financial responsibility requirements under Section 13(c) of SIPA and Section 17(d) of the Act. "Exchange" means the New York Stock Exchange, Inc. and other exchanges. "Net Capital" means net capital of the Company as defined in subparagraph (c) (2) of Rule 15c3-1 as in effect as of the date any determination is made thereunder. "Note" means the Note as defined in Section 3.A of this Agreement in the amount of $5,000,000.00. "Rule" means the respective rule promulgated pursuant to the Act and any successor rule thereto. "SIPA" means the Securities Investor Protection Act of 1970, as amended from time to time. "Subordinated Agreement" means subordinated loan agreements and secured demand note agreements as defined in subparagraph (a) (2) of Appendix D to Rule 15c3-1. "Tangible Net Worth" means the excess of total assets over total liabilities, total assets and total liabilities each to be determined in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 2.C hereof, excluding, however, from the determination of total assets all assets which would be classified as intangible assets including, without limitation, goodwill (whether representing the excess of cost over equity or any premium paid in excess of assets acquired or otherwise) and any write-up of the book value of assets resulting from a revaluation thereof after the date of such financial statements all as determined under generally accepted accounting principles. 2. REPRESENTATIONS AND WARRANTIES. The Company represents, covenants and warrants that as of the closing date hereunder: A. Corporate Existence and Power. The Company is a corporation duly formed and validly existing under the laws of the State of New York, and has the corporate power to make this Agreement and to borrow and perform the obligations 2 hereunder. The Company is duly licensed or qualified in all states wherein the character of the property owned or the nature of the business transacted by it, in the opinion of management of the Company, makes licensing or qualification necessary and is in good standing, and will remain in good standing, as a member of the Exchange. B. Corporate Authority. The making and performance by the Company of this Agreement have been duly authorized by all necessary action on the part of the Company and will not violate any provision of federal, state or local law or its Articles of Incorporation or Certificate of Incorporation or result in a breach of, or constitute a default under, or require any consent under, any material indenture or loan or credit or other agreement to which the Company is a party or by which the Company or its property may be bound or affected. C. Financial Condition. The balance sheet of the Company as at September 30, 1995, the statements of profit and loss and surplus of the Company for the audit year ending on that date, the FOCUS Report of the Company dated September 30, 1995, heretofore furnished to the Lender are complete and correct and fairly present the financial condition of the Company as at the dates of said balance sheet, FOCUS Report and the results of the Company's operations for the audit year ended on the date of said balance sheet. Such financial statements were prepared in accordance with generally accepted principles and practices of accounting consistently applied. To the best of the Company's knowledge and belief, it has no contingent obligations, or unusual forward or long term commitments not disclosed by or reserved against in said balance sheet as of September 30, 1995, or in said FOCUS Report dated September 30, 1995, and, to the best of the Company's knowledge and belief, at the present time there are no unrealized or anticipated losses from any unfavorable commitments of the Company which have not been disclosed to the Lender. Since September 30, 1995, there has been no material adverse change in the financial condition of the Company from that set forth in said balance sheet as at September 30, 1995, or in said FOCUS Report dated September 30,1995. 3 D. Titles; Liens. Other than as described in Schedule I hereto, the Company has good and marketable title to all of the properties and assets reflected in the latest financial statement (except such as have been disposed of in the ordinary course of business for a fair consideration), free and clear of all mortgages, liens, encumbrances, except such minor irregularities in title which will not interfere with the occupation, use and enjoyment by the Company of such properties and assets in the normal course of business of the Company. E. Taxes. The Company has filed all tax returns required to be filed and has paid all taxes shown thereon to be due, including interest and penalties, if any, or has provided adequate reserves for the payment thereof. The Company is not a party to any material action or proceeding by any governmental authority for the assessment or collection of taxes nor has any material claim for assessment or collection of taxes been asserted against the Company. F. Licenses, etc. The Company possesses all licenses, permits and approvals necessary for the conduct of its business as now conducted and presently proposed to be conducted as, in the opinion of the management of the Company, is required by law or the rules of the Commission, the Exchange, the National Association of Securities Dealers, Inc. and each other association, corporation or governmental agency or body having appropriate authority (except such licenses, permits or approvals by authorities outside the United States the failure to possess which will not, individually or in the aggregate, result in a material liability on the part of the Company or materially impair the right or ability of the Company to carry on its business substantially as now conducted and proposed to be conducted). G. Governmental Consent. All consents, approvals or authorizations of, or filings, registrations or qualifications with, any governmental authority (including, without limitation, any State securities commission) required by any statute, rule of regulation now in effect on the part of the Company as a condition to the valid execution and delivery of this Agreement, the valid offer of the Note to the Lender, the valid payment of the Note in accordance with the terms thereof and of this Agreement have been duly obtained and performed. 4 H. Stock Exchange Approvals. The Company has obtained all consents, approvals or authorizations of the Exchange and of other securities exchanges of which the Company is a member that are required on the part of the Company in connection with the due execution, delivery and performance of this Agreement, the offer, issue and delivery of the Note and the consummation of the transactions contemplated by such instruments. I. Broker-Dealer Registration. The Company is registered as a broker-dealer under the Act and is also registered where necessary in the opinion of the management of the Company as a broker-dealer with the proper authorities of every State of the United States. J. NASD and Exchange Memberships. The Company is a member organization in good standing of the National Association of Securities Dealers, Inc. ("NASD"), and the following securities exchanges: the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the Boston Stock Exchange. K. SIPA Agreement. The Company is not in arrears with respect to any assessment made upon the Company by the Securities Investor Protection Corporation. 3. TERMS OF THE LOAN. A. The Note. The obligation of the Company to repay the aggregate unpaid principal amount of the loan made to it pursuant hereto shall be evidenced by a promissory note of the Company in substantially the form of Exhibit A hereto. The Note shall bear interest on the unpaid principal amount thereof, from the date thereof at a rate of 9.25%. The entire unpaid balance of principal together with accrued interest shall be due and payable July 31,2001. B. Permissive Prepayment on Note. On or after December 31, 1997, with the prior written permission of the Exchange, the Company, may, at its option, prepay to the Lender all or any portion of the aggregate principal amount of the Note prior to the final scheduled maturity date of the Note (a "Voluntary Prepayment"). No prepayment of the Note shall be made, however, if, after giving effect thereto and to all other payments of principal of outstanding subordinated loan agreements of the Company, including the return of any secured demand note and the collateral therefor held by the Company, the maturity or accelerated maturity of which are scheduled to occur within 6 months after the date of such Voluntary Prepayment or other prepayment, without reference to any projected profit or loss of the Company: (i) in the event that the Company is not operating pursuant to the alternative net capital requirement provided for in paragraph (f) of the Rule (as defined in paragraph D(i) below), the aggregate indebtedness of the Company would exceed 1,000 percentum of its net capital as those terms are defined in the Rule or any successor rule as in effect at the time such Voluntary Prepayment is to be made (or such other percentum as may be made applicable at such time to the Company by the Exchange or the Commission), or (ii) in the event that the Company is operating pursuant to such alternative net capital requirement, the net capital of the Company would be less than 5 percentum (or such other percentum as may be applicable to the Company at the time of such Voluntary Prepayment by the Exchange or the Commission) of aggregate debit items computed in accordance with Exhibit A to Rule 15c3-3 under the Act or any. successor rule as in effect at such time, or (iii) in the event that the Company is registered as a future commission merchant under the CEA, the net capital of the Company (as defined in the CEA or the regulations thereunder less the market value of commodity options purchased by option customers on or subject to the rules of a contract market, provided, however, the deduction for each option customer shall be limited to the amount of customer funds in such option customer's account as in effect at the time of such Voluntary Prepayment) would be less than 7 percentum (or such other percentum as may be made applicable to the Company at the time of such Voluntary Prepayment by the CFTC) of the funds required to be segregated pursuant to the CEA and the regulations thereunder, or (iv) the Company's net capital, as defined in the Rule or any successor rule as in effect at the time of such Voluntary Prepayment, would be less than 120 percentum (or such other percentum as may be made applicable to the Company at the time of such Voluntary Prepayment by the Exchange or the Commission) of the minimum dollar amount required by the Rule as in effect at such time (or such other dollar amount as may be made applicable to the Company at the time of such Voluntary Prepayment by the Exchange or the Commission), or (v) in the event that the Company is registered as a futures commission merchant under the CEA, its net capital, as defined in the CEA or the regulations thereunder as in effect at the time of such Voluntary Prepayment would be less than 120 percentum (or such other percentum as may be made applicable to the Company at the time of such Voluntary Prepayment by' the CFTC) of the minimum dollar amount required by the CEA or the regulations thereunder as in effect at such time (or such other dollar amount as may be made applicable to the Company at the time of such Voluntary Prepayment by the CFTC), or (vi) in the event that the Company is subject to the provisions of paragraph (a)(6)(v) or (a)(7)(iv) or (c) (2) (x) (b) (1) of the Rule, the net capital of the Company would be less than the amount required to satisfy the 100% test (or such other percentum test as may be made applicable to the Company at the time of such Voluntary Prepayment by the Exchange or the Commission) stated in such applicable paragraph. If any Voluntary Prepayment or other prepayment of aggregate principal under the Note is made to the lender prior to a scheduled maturity date, and if the Company's Net Capital is less than the amount required to permit such prepayment pursuant to this section 3.B, the Lender irrevocably agrees to repay the Company the sum so paid to be held by the Company pursuant to the provisions of this Agreement as if such prepayment had never been made; provided, however, that any suit for the recovery of any such prepayment must be commenced within two years of the date of such prepayment. C. Payment. All payments of fees under this Agreement or of principal and interest on the Note shall be made in lawful money of the United States of America and in immediately available funds. Interest on the Note and any other charges to be made hereunder shall be calculated on the basis of actual days elapsed and a year of 360 days. If any principal of or interest on the Note or other amount payable by the Company hereunder falls due on a Saturday, Sunday or a legal holiday in the State of New York, then such due date shall be extended to the next succeeding full Business Day, and in the case of such an extension as to principal, interest shall be payable in respect of such extension. D. Suspended Repayment. The Company's obligation to pay all or a portion of the principal amount of the loan hereunder on a scheduled maturity date or any accelerated maturity date ("Amount Due") shall be suspended, and the obligation shall not mature for any period of time during which after giving effect to such payment, together with the payment of any other obligation of the Company under other subordinated loan agreements payable during such period and the return of any secured demand note and the collateral therefor held by the Company and returnable during such period, (i) in the event that the Company is not operating pursuant to the alternative net capital requirement provided for in paragraph (0 of Rule 15c3-1 (the "Rule") under the Securities Exchange Act of 1934, as amended, the aggregate indebtedness of the Company would exceed 1200 percentum of its net capital as those terms are defined in the Rule or any successor rule as in effect at the time payment is to be made (or such other percenturn as may be made applicable to the Company at the time of such payment by the Exchange or the Commission), or (ii) in the event that the Company is operating pursuant to such alternative net capital requirement, the net capital of the Company would be less than 5 percentum (or such other percentum as may be made applicable to the Company at the time of such payment by the Exchange or the Commission) of aggregated debit items computed in accordance with Exhibit A to Rule 15c3-3 under the Act or any successor rule as in effect at such time, or (iii) in the event that the Company is registered as a futures commission merchant under the CEA, the net capital of the Company (as defined in the CEA or the regulations thereunder as in effect at the time of such payment) would be less than 6 percentum (or such other percentum as may be made applicable to the Company at the time of such payment by the CFTC) of the funds required to be segregated pursuant to the CEA and the regulations thereunder, or (iv) the Company's net capital, as defined in the Rule or any successor rule as in effect at the time of such payment, would be less than 120 percentum (or such other percentum as may be made applicable to the Company at the time of such payment by the Exchange or the Commission) of the minimum dollar amount required by the Rule as in effect at such time (or such other dollar amount as may be made applicable to the Company at the time of such Voluntary Prepayment by the Exchange or the Commission), or (v) in the event that the Company is registered as a futures commission merchant under the CEA, and if its net capital, as defined in the CEA or the regulations thereunder as in effect at the time of such payment, would be less than 120 percentum (or such other percentum as may be made applicable to the Company at the time of such payment by the CFTC) of the minimum dollar amount required by the CEA or the regulations thereunder as in effect at such time (or such other dollar amount as may be made applicable to the Company at the time of such payment by the CFTC), or (vi) in the event that the Company is subject to the provisions of paragraph (a) (6) (v) or (a) (7) (iv) or (c) (2) (x) ~) (1) of the Rule, the net capital of the Company would be less than the amount required to satisfy the 1000% test (or such other percentum test as may be made applicable to the Company at the time of such payment by the Exchange or the Commission) stated in such applicable paragraph (the net capital necessary to enable the Company to avoid such suspension of its obligation to pay the principal amount hereof being hereafter referred to as the "Applicable Minimum Capital"). During any such suspension, the Company shall, as promptly as is consistent with the protection of its customers, reduce its business to a condition whereby the Amount Due, with accrued interest thereon, together with any other obligation of the Company under subordinated loan agreements payable at or prior to the payment of the Amount Due can be repaid and any secured demand note and the collateral therefore held by the Company and returnable at or prior to the payment of the Amount Due can be returned, all without Net Capital being below the Applicable Minimum Capital, at which time the obligation to pay the Amount Due shall mature and the Company shall repay the Amount Due, plus accrued interest, not later than upon 5 days' prior written notice to the Exchange. Upon any such suspension, the Company and the Lender recognize and agree that the Company may be summarily suspended by the Exchange. The Company agrees that, if its obligations to pay the Amount Due is ever suspended for a period of six months, it will promptly take whatever steps are necessary to effect a rapid and orderly complete liquidation of its business. The date on which such liquidation commences shall be deemed, for purposes of the Lender's claims hereunder, to constitute the maturity date for each Subordination Agreement of the Company then outstanding but the right of the respective lenders to receive payment under this and such other Subordination Agreements shall remain subordinated, and have priority rank, in accordance with the terms hereof and thereof, respectively. If payment of aggregate principal under the Note is made to the Lender on a scheduled maturity date and, immediately after any such payment, Net Capital is less than the Applicable Minimum Capital, the Lender irrevocably agrees to repay to the Company the sum so paid, to be held by the Company pursuant to the provisions of this Agreement as if such payment had never been made; provided, however, that any suit for the recovery of any such payment must be commenced within two years of the date of such payment. E. Subordination of this Agreement. The Lender. irrevocably agrees that the obligations of the Company with respect to the payment of principal and interest on the Note are and shall be subordinate in right of payment and subject to the prior payment or provision for payment in full of (i) all claims of all other present and future creditors of the Company whose claims are not similarly subordinated (claims under the Note shall rank pari passu with claims similarly subordinate) or are not junior in right of payment to claims under such Note and (ii) claims which are now or hereafter expressly stated in the instruments creating such claims to be senior in right of payment to the claims of the class of claims under the Note, arising out of any matter occurring prior to the maturity date of the Note. In the event of appointment of a receiver or trustee of the Company or in the event of its insolvency or liquidation pursuant to SPA or otherwise, its bankruptcy, assignment for the benefit of creditors, reorganization whether or not pursuant to bankruptcy laws, or any other marshalling of the assets and liabilities of the Company, the holder of the Note shall not be entitled to participate or share, ratably or otherwise, in the distribution of the assets of the Company until all claims of all other present and future creditors of the Company, whose claims are senior to the Note, have been fully satisfied, or provision has been made therefor. 4. CONDITIONS OF LENDING. The obligation of the Lender to make the loan hereunder is subject to the following conditions precedent: A. Proof of Corporate Action. The Lender shall have received certified copies of all corporate action taken by the Company to authorize the execution and delivery of this Agreement and the Note, and such other papers as the Lender or its counsel shall reasonably require. B. Delivery of the Note. As of the date of the initial borrowing the Lender shall have received from the Company a duly executed Note. 5. AFFIRMATIVE COVENANTS. The Company agrees that until payment in full of the Note, unless the Lender shall otherwise consent in writing it will: A. Financial Statements, Reports, etc. Furnish the Lender: (i) within ninety (90) days after the end of each audit year of the Company a balance sheet and statements of income, together with supporting schedules, and the FOCUS Report of the Company as at the end of such audit year, all audited and unqualifiedly certified by independent certified public accountants of recognized standing selected by the Company and acceptable to the Lender showing the financial condition of the Company at the close of such year and the results of operations of the Company during such year, along with the Company's computation of Net Capital and the Company's computation of the ratio of Net Capital to Aggregate Debit Items, which computations are to be as of the last day of the audit year; (ii) within thirty (30) days after the end of each of the first three audit quarters in each audit year, the FOCUS Report of the Company, certified by a duly authorized officer of the Company, along with the Company's computation of Net Capital and the Company's computation of the ratio of Net Capital to aggregate Debit Items, which computations are to be as of the last day of the audit quarter; (iii) promptly as it may occur any amendment to its Articles of Incorporation or Certificate of Incorporation; (iv) promptly, from time to time, such other information regarding the operations, business, affairs and financial condition of the Company as the Lender may reasonably request. B. Taxes. Pay and discharge all taxes, assessments and governmental charges or levies imposed on the Company or its income or profits or any of its property prior to the date on which penalties attached hereto, except any such tax, assessment, charge or levy the payment of which may be or is being contested in good faith and by proper proceedings and for which the Company is maintaining adequate reserves. C. Maintenance of Existence: Conduct of Business. Maintain its existence as a Corporation and all of its rights, privileges and franchises necessary or desirable in the normal conduct of its business, and will conduct its business in an orderly, efficient and regular manner. D. Notices. Furnish the Lender, promptly after knowledge thereof shall have come to the attention of any executive officer of the Company, written notice of (i) any threatened or pending litigation or governmental or administrative proceeding against the Company which would materially and adversely affect the business and property of the Company, (ii) the occurrence of any Event of Default hereunder or any event which with notice or the passage of time or both would constitute such an Event of Default and (iii) the occurrence of any default under any other material agreement to which the Company is a party or any event which with notice or the passage of time or both would constitute such a default; and in the case of (i) , (ii) and (iii) except to the extent such occurrence would hot have a material adverse effect on the financial condition of the Company. 6. NEGATIVE COVENANTS. The Company agrees that until payment in full of the Note, unless the Lender shall otherwise agree in writing, it will not: A. Limitation of Liens. Create or suffer to exist any security interest, mortgage, pledge, lien, charge, encumbrance, assignment or transfer upon or of any of its property or assets now owned and hereafter acquired, excluding, however, from the operation of this covenant: (i) liens that exist on the date hereof; (ii) securities and commodities now owned or hereafter acquired by the Company in the ordinary course of its business as a broker and dealer in securities; (iii) deposits or pledges to secure payment of worker's compensation, unemployment insurance, old age pensions or other social security; (iv) deposits or pledges to secure performance of bids, tenders, contracts (other than contracts for the payment of money), or leases, public or statutory obligations, surety or appeal bonds, or other deposits or pledges for purposes of like general nature in the ordinary course of business; (v) liens for property taxes not delinquent and liens for taxes or other governmental charges which in good faith are being contested or litigated; (vi) mechanics', carriers', workmen's, repairmen's or other like liens arising in the ordinary course of business securing obligations which are not overdue for a period of sixty (60) days, or which are in good faith being contested or litigated; (vii) liens in favor of the Company or any wholly-owned subsidiary of the Company; (viii) purchase money liens on property or equipment; and (ix) liens for the sole purpose of extending, renewing or replacing in whole or in part any of the foregoing. B. Total Liabilities Permit, at any time, the ratio of aggregate indebtedness to Tangible Net Worth to exceed 20.0 to 1.0. C. Sell. Lease. etc. Sell, lease, transfer or otherwise dispose of all or substantially all of its assets. D. Dissolution, etc. Dissolve or liquidate. E. Net Capital Provision. Permit, at any time: (i) Net Capital to be less than $7,500,000.00, which shall include funds advanced pursuant to this Agreement; or (ii) Net Capital to be less than 3.5 times the amount of two percent (2%) of total debits as determined per Exhibit A of Rule 15c3-3, and (iii) Net Capital in excess of five percent (5%) of total debits as determined per Exhibit A of Rule 15c3-3 to be less than 50% of the amount of Net Capital attributable to the Note. F. Total Capitalization. Permit, at any time, total capital as shown in the audited financial statements of the Company (excluding therefrom, however, all indebtedness of the Company to the Lender hereunder), to be less than $9,500,000. 7. A. Events of Default. Upon the occurrence of any one of the events described below in subparagraphs (i) through (v) the Lender by written notice to the Company, with a copy to the Exchange, may declare the unpaid principal amount of and all accrued interest on the Note to be immediately due and payable whereupon the same shall become due and payable without presentment, demand, protest or further notice of any kind. The Lender may rescind and annul any such declaration of acceleration upon written notice to the Company and to the Exchange, but no such rescission or annulment shall impair the Lender's right to declare subsequent accelerations. If on the date such Event of Default occurs, liquidation of the Company has not already commenced, all unpaid principal and accrued interest with respect to all other subordination agreements of the Company then outstanding shall be due and payable, but the rights of the respective lenders thereunder shall remain subordinate as provided in Section 3 of the Cash Subordination Agreement. (i) The making of an application by the Securities Investor Protection Corporation for a decree adjudicating that customers of the Company are in need of protection under SPA and the failure of the Company to obtain the dismissal of such application within 30 days; or (ii) (a) If the Company is not operating pursuant to the alternative net capital requirements provided for in Paragraph (f) of Rule 15c3-1, Aggregate Indebtedness being in excess of 1500 percentum of Net Capital, or (1') if the Company is operating pursuant to such alternative net capital requirements, Net Capital being less than that percentum of Aggregate Debit Items which is required to be maintained by the Company by said Paragraph (f) as from time to time in effect or, if the Company is registered as a futures commission merchant, 4% of the funds required to be segregated under the Commodities Exchange Act and the regulations promulgated thereunder, if greater, in either case throughout a period of 15 consecutive Business Days commencing on the day the Company first determines and notifies the Exchange or the Company first received notice from the Commission of such fact; or (iii) Revocation by the Commission of the broker-dealer registration of the Company; or (iv) Suspension or revocation for at least ten (10) days by the Exchange of the Company's status as a member organization of the Exchange; or (v) Any receivership, insolvency, liquidation pursuant to SPA or otherwise, bankruptcy, assignment for benefit of creditors, reorganization, whether or not pursuant to bankruptcy laws, or any other marshaling of the assets and liabilities of the Company. B. Events of Acceleration. Upon the occurrence of any one of the events described below in subparagraphs (i) through (v) and after six months from the Effective Date, the Lender by written notice to the Company, with a copy to the Exchange, may acceleration the date on which the unpaid principal amount and all accrued interest on the Note is scheduled to mature, to the last business day of a calendar month which is not less than six months after notice of acceleration is received by the Company and the Exchange. (i) Failure to make payment of (a) interest on the Note when due, or (b) principal of the Note when due, on a scheduled maturity date, and any such failure continuing for more than ten (10) business days after the giving of written notice to the Company of such failure; or (ii) Any material representation or warranty of the Company set forth in Section 2 of this Agreement is determined to have been inaccurate in a material respect at the time made; or (iii) Default in the performance of any covenant set forth in Section 5 of this Agreement, and such default continuing for more than ten (10) business days after written notice thereof; or (iv) Default in the compliance with any covenant set forth in Section 6 of this Agreement, and such default continuing for more than ten (10) business days after written notice thereof; or (v) Action against the Company is taken by any governmental regulatory authority which specifically affects the Company and which, in the reasonable opinion of the Lender, will materially and adverse affect the Company's ability to pay the principal of, and interest on, the Note. 8. CHANGE OF CONTROL. A. Upon the occurrence of a Change of Control (as defined below), the Lender shall have the right to require the Company to repurchase the Note, in whole but not in part, pursuant to the offer described in paragraph ~) below (the "Change of Control Offer") at a purchase price (the "Repurchase Price") in cash equal to the aggregate principal amount thereof plus accrued and unpaid interest thereon, if any, to the Change of Control Payment Date (as defined below). B. Within 30 calendar days subsequent to the date of any Change of Control but no earlier than six months following the Effective Date, the Company shall mail a notice to the Lender stating: (i) that a Change of Control has occurred and that a Change of Control Offer is being made pursuant to this Section 8; and (ii) the Repurchase Price and the date by which the Note shall be tendered for repurchase, which date shall be a date occurring no earlier than six (6) months and no later than seven (7) months subsequent to the date on which such notice is mailed (the "Change of Control Payment Date"); C. On the Change of Control Payment Date the Lender shall surrender the Note to the Company, the Company shall pay to the Lender the Repurchase Price and the Note shall be canceled. If the Note is not so tendered, then, the Note shall continue to accrue interest and the principal will be due at maturity in the same manner as if such Change of Control had not occurred. D. A "Change of Control" means an event or series of events by which (i) any "person" or "group" becomes the "beneficial owner" (each as defined under Section 13d of the Act), directly or indirectly, of 50% or more of the total voting power of all classes of voting stock of the Company or First Albany Companies Inc. ("FACI") or (ii) the Company or FACI consolidates with or merges into any other entity, other than a wholly-owned subsidiary of the Company or FACI, or any other entity merges into the Company or FACI or conveys, transfers or leases all or substantially all of its assets to any entity or group of entities as a result of which the existing shareholders of the Company or FACI immediately prior thereto hold less than 50% of the combined voting power of the voting stock of the surviving entity. 9. MISCELLANEOUS. A. No Waiver; Remedies Cumulative. No failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder shall preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. B. Survival of Representations. All representations and warranties made herein shall survive the making of the loan hereunder and delivery of the Note. C. Construction. This Agreement and the Note shall be deemed to have been made under the laws of the State of New York, without regard to its principals of conflicts of law, and shall be construed in accordance with the laws of said state. D. Successors and Assigns. This Agreement shall be binding upon, and shall inure to the benefit of, the Company, the Lender and their respective successors and assigns. E. Notices. Notices shall be given to the Lender and the Company by personal delivery or by registered or certified mail, return receipt requested, addressed as follows: If to the Company, to: Chief Financial Officer First Albany Corporation 30 South Pearl Street Albany, New York 12207 If to the Lender, to: Sharon M. Duker c/o William F. Duker Duker & Barrett 100 State Street Albany, New York 12207 If to the New York Stock Exchange, to: Finance Coordinator New York Stock Exchange 20 Broad Street New York, New York 10005 F. Accredited Investor/Limitations on Transfer The Lender acknowledges and represents that (i) it is an accredited investor, as that term is defined in Rule 501 promulgated under the Securities Act of 1933, as amended (the "Act") by virtue of Lender having a net worth, either individually or with Lender's spouse, of at least $1,000,000, (ii) it is acquiring the Note for investment purposes only and not with a view to, or for sale in connection with, any distribution of the Note, or with any present intention of selling the Note, or any part thereof, and (iii) it will not transfer the Note, or any part thereof, unless such transfer complies with the registration requirements of the Act or an exemption from such registration requirements is applicable to such transfer. G. Disclaimer. The Lender, by accepting the Note, irrevocably agrees that its making of the loans evidenced by the Note is not being made in reliance upon the standing of the Company as a member organization of the Exchange or upon the Exchange's surveillance of the Company's financial position or its compliance with the constitution, rules and practices of the Exchange. The Lender has made such investigation of the Company and its Officers and employees as the Lender deems necessary and appropriate under the circumstances. The Lender is not relying upon the Exchange to provide any information concerning or relating to the Company and agrees that the Exchange has no responsibility to disclose to the Lender any information concerning or relating to the Company which it may now or in the future have. The Lender agrees that neither the Exchange, its special trust fund, nor any director, officer, trustee or employee of the Exchange, shall be liable to the Lender with respect to this Agreement or the Note or the repayment thereof of any interest thereon. H. Assignment. The Note may not be transferred, sold, assigned, pledged or otherwise encumbered or otherwise disposed of, and no lien, charge or other encumbrance may be created or permitted to be created hereon without the prior written consent of the Exchange and the Company, except that the Company shall not without its consent to such transfer to a member of Lender's immediate family. Any transfer not permitted by the foregoing shall be void. I. Exchange Approval. This Agreement shall not be modified or amended without the prior written approval of the Exchange. J. Entire Agreement. This Agreement and the Note embody the entire agreement as to the subject matter hereof between the Company and the Lender and no other evidence of such agreement has been or will be executed without the prior written consent of the Exchange. K. Cancellation. Neither this Agreement nor the Note shall be subject to cancellation by either party except as may be permitted hereunder. L. Notice to CFTC. So long as the Company is a futures commission merchant as that term is defined in the Commodity Exchange Act, the Company agrees, consistent with the requirements of Section 1.17Q) of the regulations of the CFTC, that: (i) whenever prior written notice by the Company to the Exchange is required pursuant to the provisions of this Agreement, the same prior written notice shall be given by the Company to (a) the CFTC at its principal office in Washington, D.C., Attention: Chief Accountant of Division of Trading and Markets, and/or (1,) the commodity exchange of which the Company is a member and which is then designated by the CFTC as the Company's designated self-regulatory organization (the ("DSRO"), and (ii) whenever prior written consent, permission or approval of the Exchange is required pursuant to the provisions of this Agreement, the Company shall also obtain the prior written consent, permission or approval of the CFTC and/or of the DSRO, and (iii) whenever the Company receives written notice of acceleration of maturity pursuant to the provisions of this Agreement, the Company shall promptly give written notice thereof to the CFTC at the address above stated and/or the DSRO. M. Status of Proceeds The proceeds of the loan evidenced hereby shall be dealt with in all respects as capital of the Company, shall be subject to the risks of its business, and may be deposited in an account or accounts in the Company's name in any bank or trust company. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day of the year first written above. FIRST ALBANY CORPORATION LENDER: By:_________________________ __________________________ Name: Sharon M. Duker Title: NOTE $5,000,000.00 Albany, New York September 16, 1996 FOR VALUE RECEIVED, the undersigned FIRST ALBANY CORPORATION, a New York corporation with offices at 30 South Pearl Street, Albany, New York 12207, promises to pay to the order of Sharon M. Duker, (herein called the "Lender"), at the office of the Lender in Albany, New York or at such other place in New York as may be designated from time to time by the Lender, the sum of Five Million ($5,000,000.00) Dollars and to pay interest on the disbursed, unpaid principal, from the date hereof, at the rate of nine and one-quarter (9.25%) percent per annum. The undersigned promises to pay the principal and interest as follows: (a) Accrued interest to be paid on the 31st day of September, 1996, and on the last day of each succeeding month thereafter during the term hereof. (b) The entire unpaid balance of principal together with accrued interest to be paid to the Lender on the 31st day of July, 2001. All amounts paid pursuant to this paragraph shall be applied first to the payment of accrued interest to the date of payment and then to the reduction of principal. The undersigned agrees to pay accrued interest and/or principal when due. This Note is subject to the terms, covenants and conditions set forth in a Subordinated Loan Agreement by and between the undersigned and the Lender, dated the date hereof (the "Loan Agreement"), and all such terms, covenants and conditions of such Loan Agreement are all hereby incorporated in this Note, with the same force and effect as though said terms, covenants and conditions were fully set forth herein. The prepayment of any portion of the principal or interest due under this Note shall be allowed in accordance with the terms of the Loan Agreement. DEFAULT. Upon the occurrence of certain Events of Default, specified in the loan Agreement, the principal of and interest on this Note may be declared due and payable either immediately or as set forth therein. The payment of principal of the Note may be suspended upon the occurrence of certain events specified in the Loan Agreement, and such suspension will not constitute a default hereunder. The undersigned agrees to pay all costs and expenses incurred by the holder hereof in enforcing this Note, including, without limitation, reasonable attorneys' fees and legal expenses. FIRST ALBANY CORPORATION (CORPORATE SEAL) By:_________________________ ATTEST: Alan P. Goldberg President _______________________ EX-10.21 5 EXHIBIT 10.21 MASTER EQUIPMENT LEASE AGREEMENT THIS MASTER EQUIPMENT LEASE AGREEMENT dated as of September 25, 1996 is made by and between KEYCORP LEASING LTD., a Delaware corporation with its principal place of business at 54 State Street, Albany, New York 12207 ("Lessor"), and FIRST ALBANY COMPANIES INC., a New York corporation with its principal place of business at 41 State Street, Albany, NY 12207 ("Lessee"). TERMS AND CONDITIONS OF LEASE 1. Lease. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Equipment, subject to and upon the terms and conditions set forth herein. Each Equipment Schedule shall constitute a separate and enforceable lease Incorporating all the terms and conditions of this Master Equipment Lease Agreement as if such terms and conditions were set forth in full in such Equipment Schedule. In the event that any term or condition of this Equipment Schedule conflicts with or is inconsistent with any term or condition of this Master Equipment Lease Agreement, the terms and conditions of the Equipment Schedule shall govern. 2. Disclaimer of Warranties. LESSOR MAKES NO (AND SHALL NOT BE DEEMED TO HAVE MADE ANY) WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN, OPERATION OR CONDITION OF, OR THE QUALITY OF THE MATERIAL, EQUIPMENT OR WORKMANSHIP IN, THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, THE STATE OF TITLE THERETO OR ANY COMPONENT THERETO, THE ABSENCE OF LATENT OR OTHER DEFECTS (WHETHER OR NOT DISCOVERABLE), AND LESSOR HEREBY DISCLAIMS THE SAME; IT BEING UNDERSTOOD THAT THE EQUIPMENT IS LEASED TO LESSEE "AS IS" AND ALL SUCH RISKS, IF ANY, ARE TO BE BORNE BY LESSEE. NO DEFECT IN, OR UNFITNESS OF, THE EQUIPMENT, OR ANY OF THE OTHER FOREGOING MATTERS, SHALL RELIEVE LESSEE OF THE OBLIGATION TO PAY RENT OR OF ANY OTHER OBLIGATION HEREUNDER. LESSEE HAS MADE THE SELECTION OF THE EQUIPMENT FROM THE SUPPLIER BASED ON ITS OWN JUDGMENT AND EXPRESSLY DISCLAIMS ANY RELIANCE UPON ANY STATEMENTS OR REPRESENTATIONS MADE BY LESSOR. LESSOR IS NOT RESPONSIBLE FOR ANY REPAIRS, SERVICE, MAINTENANCE OR DEFECT IN THE EQUIPMENT OR THE OPERATION THEREOF. IN NO EVENT SHALL LESSOR BE LIABLE FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES (WHETHER UNDER THE UCC OR OTHERWISE), INCLUDING, WITHOUT LIMITATION, ANY LOSS, COST OR DAMAGE TO LESSEE OR OTHERS ARISING FROM ANY OF THE FOREGOING MATTERS, INCLUDING, WITHOUT LIMITATION, DEFECTS, NEGLIGENCE, DELAYS, FAILURE OF DELIVERY OR NON- PERFORMANCE OF THE EQUIPMENT. ANY WARRANTY BY THE SUPPLIER IS HEREBY ASSIGNED TO LESSEE BY LESSOR WITHOUT RECOURSE. SUCH WARRANTY SHALL NOT RELEASE LESSEE FROM ITS OBLIGATION TO LESSOR TO PAY RENT, TO PERFORM ALL OTHER OBLIGATIONS HEREUNDER AND TO KEEP, MAINTAIN AND SURRENDER THE EQUIPMENT IN THE CONDITION REQUIRED BY SECTIONS 12 AND 13 HEREOF. Lessee's execution and delivery of a Certificate of Acceptance shall be conclusive evidence as between Lessor and Lessee that the Items of Equipment described therein are in all of the foregoing respects satisfactory to Lessee, and Lessee shall not assert any claim of any nature whatsoever against Lessor based on any of the foregoing matters; provided, however, that nothing contained herein shall in any way bar, reduce or defeat any claim that Lessee may have against the Supplier or any other person (other than Lessor). 3. Non-Cancelable Lease. THIS LEASE IS A NET LEASE AND LESSEE'S OBLIGATION TO PAY RENT AND PERFORM ITS OBLIGATIONS HEREUNDER ARE ABSOLUTE, IRREVOCABLE AND UNCONDITIONAL UNDER ANY AND ALL CIRCUMSTANCES WHATSOEVER AND SHALL NOT BE SUBJECT TO ANY RIGHT OF SET OFF, COUNTERCLAIM, DEDUCTION, DEFENSE OR OTHER RIGHT WHICH LESSEE MAY HAVE AGAINST THE SUPPLIER, LESSOR OR ANY OTHER PARTY. LESSEE SHALL HAVE NO RIGHT TO TERMINATE (EXCEPT AS EXPRESSLY PROVIDED HEREIN) OR CANCEL THIS LEASE OR TO BE RELEASED OR DISCHARGED FROM ITS OBLIGATION HEREUNDER FOR ANY REASON WHATSOEVER, INCLUDING, WITHOUT LIMITATION, DEFECTS IN, DESTRUCTION OF, DAMAGE TO OR INTERFERENCE WITH ANY USE OF THE EQUIPMENT (FOR ANY REASON WHATSOEVER, INCLUDING, WITHOUT LIMITATION, WAR, ACT OF GOD, STRIKE OR GOVERNMENTAL REGULATION), THE INVALIDITY, ILLEGALITY OR UNENFORCEABILITY (OR ANY ALLEGATION THEREOF) OF THIS LEASE OR ANY PROVISION HEREOF, OR ANY OTHER OCCURRENCE WHATSOEVER, WHETHER SIMILAR OR DISSIMILAR TO THE FOREGOING, WHETHER FORESEEN OR UNFORESEEN. MASTER EQUIPMENT LEASE AGREEMENT R94-100.996 4. Definitions. Unless the context otherwise requires, as used in this Lease, the following terms shall have the respective meanings indicated below and shall be equally applicable to both the singular and the plural forms thereof: (a) "Applicable Law" shall mean all applicable Federal, state, local and foreign laws (including, without limitation, any Environmental Law, industrial hygiene and occupational safety or similar laws), ordinances, judgments, decrees, injunctions, writs and orders of any Governmental Authority and rules, regulations, orders, licenses and permits of any Governmental Authority. (b) "Appraisal Procedure" shall mean the following procedure for obtaining an appraisal of the Fair Market Sales Value or the Fair Market Rental Value. Lessor shall provide Lessee with the names of three independent Appraisers. Within ten (10) business days thereafter, Lessee shall select one of such Appraisers to perform the appraisal. The selected Appraiser shall be instructed to perform its appraisal based upon the assumptions specified in the definition of Fair Market Sales Value or Fair Market Rental Value, as applicable, and shall complete its appraisal within twenty (20) business days after such selection. Any such appraisal shall be final, binding and conclusive on Lessee and Lessor and shall have the legal effect of an arbitration award. Lessee shall pay the fees and expenses of the selected Appraiser. (c) "Appraiser" shall mean a person engaged in the business of appraising property who has at least ten years' experience in appraising property similar to the Equipment. (d) "Authorized Signer" shall mean those officers of Lessee, set forth on an incumbency certificate (in form and substance satisfactory to Lessor) delivered by Lessee to Lessor, who are authorized and empowered to execute this Lease, the Equipment Schedules and all other documents the execution of which is contemplated hereby. (e) "Certificate of Acceptance" shall mean a certificate of acceptance, in form and substance satisfactory to Lessor, executed and delivered by Lessee in accordance with Section 7 hereof indicating, among other things, that the Equipment described therein has been accepted by Lessee for all purposes of this Lease. (f) "Default" shall mean any event or condition which, with the passage of time or the giving of notice, or both, would constitute an Event of Default. (g) "Environmental Law" shall mean any federal, state, or local statute, law, ordinance, code, rule, regulation, or order or decree regulating, relating to. or imposing liability upon a person in connection with the use, release or disposal of any hazardous, toxic or dangerous substance, waste, or material as same may relate to the Equipment or its operation. (h) "Equipment" shall mean an item or items of personal property designated from time to time by Lessee which are described on an Equipment Schedule and which are being or will be leased by Lessee pursuant to this Lease, together with all replacement parts, additions and accessories incorporated therein or affixed thereto. (i) "Equipment Group" shall consist of all Items of Equipment listed on a particular Equipment Schedule. (j) "Equipment Location" shall mean the location of the Equipment, as set forth on an Equipment Schedule, or such other location (approved by Lessor) as Lessee shall from time to time specify in writing. (k) "Equipment Schedule" shall mean each equipment lease schedule from time to time executed by Lessor and Lessee with respect to an Equipment Group, pursuant to and incorporating by reference all of the terms and conditions of this Master Equipment Lease Agreement. (l) "Event of Default" shall have the meaning specified in Section 22 hereof. (m) "Fair Market Rental Value" or "Fair Market Sale Value" shall mean the value of each Item of Equipment for lease or sale, unless otherwise specified herein as determined between Lessor and Lessee, or, if Lessor and Lessee are unable to agree, pursuant to the Appraisal Procedure, which would be obtained in an arms-length transaction between an informed and willing lessor or seller (under no compulsion to lease or sell) and an informed and willing lessee or buyer (under no compulsion to lease or purchase). in determining the Fair Market Rental Value or Fair Market Sale Value of the Equipment, (a) such Fair Market Rental Value or Fair Market Sale Value shall be calculated on the assumption that the Equipment is in the condition and repair required by Sections 12 and 13 hereof, and (b) there shall be excluded from the calculation thereof the value of any upgrades and attachments made pursuant to Section 14 hereof in which the Lessor does not own an interest; provided, however, that, unless otherwise provided in such Section 22, for purposes of Section 22 of the Lease, Fair Market Sale Value of the Equipment shall be determined based upon the actual facts and circumstances then prevailing without regard to the assumptions in clause (a) above. (n) "Governmental Action" shall mean all authorizations, consents, approvals, waivers, filings and declarations of any Governmental Authority, including, without limitation, those environmental and operating permits required for the ownership, lease, use and operation of the Equipment. (o) "Governmental Authority" shall mean any foreign, Federal, state, county, municipal or other governmental authority, agency, board or court. (p) "Guarantor" shall mean any guarantor of Lessee's obligations hereunder. (q) "Item of Equipment" shall mean each item of the Equipment. MASTER EQUIPMENT LEASE AGREEMENT R94-100.996 2 (r) "Late Payment Rate" shall mean an annual interest rate equal to the lesser of 18% or the maximum interest rate permitted by Applicable Law. (s) "Lease", "hereof", "herein" and "hereunder" shall mean, with respect to an Equipment Group, this Master Equipment Lease Agreement and the Equipment Schedule on which such Equipment Group is described, including all addenda attached thereto and made a part thereof. (t) "Lien" shall mean all mortgages, pledges, security interests, liens, encumbrances, claims or other charges of any kind whatsoever. (u) "Purchase Agreement" shall mean any purchase agreement or other contract entered into between the Supplier and Lessee for the acquisition of the Equipment to be leased hereunder. (v) "Related Equipment Schedule" shall have the meaning set forth in Section 27 hereof. (w) "Renewal Notice" shall have the meaning set forth in Section 32 hereof. (x) "Return Notice" shall have the meaning set forth In Section 13 hereof. (y) "Rent" shall mean the periodic rental payments due hereunder for the leasing of the Equipment, as set forth on the Equipment Schedules, and, where the context hereof requires, all such additional amounts as may from time to time be payable under any provision of this Lease. (z) "Rent Commencement Date" shall mean, with respect to an Equipment Group, the date on which Lessor disburses funds for the purchase of such Equipment Group, as determined by Lessor in its sole discretion. (aa) "Rent Payment Date" with respect to an Equipment Group, shall have the meaning set forth in the Equipment Schedule associated therewith. (ab) "Stipulated Loss Value" shall mean, as of any Rent Payment Date and with respect to an Item of Equipment, the amount determined by multiplying the Total Cost for such Item of Equipment by the percentage specified in the applicable Stipulated Loss Value Supplement opposite such Rent Payment Date. (ac) "Stipulated Loss Value Supplement" with respect to an Equipment Group, shall have the meaning set forth in the Equipment Schedule associated therewith. (ad) "Supplier" shall mean the manufacturer or the vendor of the Equipment, as set forth on each Equipment Schedule. (ae) "Term" shall mean the Initial Term, as defined in Section 8 hereof, and any Renewal Term, as defined. in Section 8 hereof. (af) "Total Cost" shall mean, with respect to an Item of Equipment, (1) the acquisition cost of such item of Equipment (including Lessors capitalized costs), as set forth on the Equipment Schedule on which such item of Equipment is described, or (2) if no such acquisition cost is specified, the Suppliers invoice price for such Item of Equipment plus Lessors capitalized costs, or (3) if no such acquisition cost is specified and no such invoice price is obtainable, an allocated price for such Item of Equipment based on the Total Cost of all Items of Equipment set forth on the Equipment Schedule on which such Item of Equipment is described, as determined by Lessor in its sole discretion. 5. Supplier Not an Agent. LESSEE UNDERSTANDS AND AGREES THAT (i) NEITHER THE SUPPLIER, NOR ANY SALES REPRESENTATIVE OR OTHER AGENT OF THE SUPPLIER, IS (1) AN AGENT OF LESSOR OR (2) AUTHORIZED TO MAKE OR ALTER ANY TERM OR CONDITION OF THIS LEASE, AND (ii) NO SUCH WAIVER OR ALTERATION SHALL VARY THE TERMS OF THIS LEASE UNLESS EXPRESSLY SET FORTH HEREIN. 6. Ordering Equipment. Lessee has selected and ordered the Equipment from the Supplier and, if appropriate, has entered into a Purchase Agreement with respect thereto. Lessor shall accept an assignment from Lessee of Lessee's rights, but none of Lessee's obligations, under any such Purchase Agreement. Lessee shall arrange for delivery of the Equipment so that it can be accepted in accordance with Section 7 hereof. If an Item of Equipment is subject to an existing Purchase Agreement between Lessee and the Supplier, Lessee warrants that such Item of Equipment has not been delivered to Lessee as of the date of the Equipment Schedule applicable thereto. If Lessee causes the Equipment to be modified or altered, or requests any additions thereto prior to the Rent Commencement Date, Lessee (i) acknowledges that any such modification, alteration or addition to an Item of Equipment may affect the Total Cost, taxes, purchase and renewal options, if any, Stipulated Loss Value and Rent with respect to such Item of Equipment, and (ii) hereby authorizes Lessor to adjust such Total Cost, taxes, purchase and renewal options, if any, Stipulated Loss Value and Rent as appropriate. Lessee hereby authorizes Lessor to complete each Equipment Schedule with the serial numbers and other identification data of the Equipment Group associated therewith, as such data is received by Lessor. 7. Delivery and Acceptance. Upon acceptance for lease by Lessee of any Equipment delivered to Lessee and described in any Equipment Schedule, Lessee shall execute and deliver to Lessor a Certificate of Acceptance. LESSOR SHALL HAVE NO OBLIGATION TO ADVANCE FUNDS FOR THE PURCHASE OF THE EQUIPMENT UNLESS AND UNTIL LESSOR SHALL HAVE RECEIVED A CERTIFICATE OF ACCEPTANCE MASTER EQUIPMENT LEASE AGREEMENT R94-100.966 3 RELATING THERETO EXECUTED BY LESSEE. Such Certificate of Acceptance shall constitute Lessee's acknowledgment that Such Equipment (a) was received by Lessee, (b) is satisfactory to Lessee in all respects and is acceptable to Lessee for lease hereunder, (c) is suitable for Lessee's purposes, (d) is in good order, repair and condition, (e) has been installed and operates properly, in accordance with and to the extent required under the terms of applicable Supplier agreements, and (f) is subject to all of the terms and conditions of this Lease (including, without limitation, Section 2 hereof). 8. Term; Survival. With respect to any Item of Equipment, unless otherwise specified thereon, the initial term of this Lease (the "Initial Term") shall commence on the date on which such Item of Equipment is delivered to Lessee, and, unless earlier terminated as provided herein, shall expire on the final Rent Payment Date for such Item of Equipment. With respect to an Item of Equipment, any renewal term of this Lease (individually, a "Renewal Term"), as contemplated hereby shall commence immediately upon the expiration of the Initial Term or any prior Renewal Term, as the case may be, and, unless earlier terminated as provided herein, shall expire on the date on which the final payment of Rent is due and paid hereunder. All obligations of Lessee hereunder shall survive the expiration, cancellation or other termination of the Term hereof. 9. Rent. With respect to Each Item of Equipment, Lessee shall pay the Rent set forth on the Equipment Schedule applicable to such Item of Equipment, commencing on the Rent Commencement Date, and, unless otherwise set forth on such Equipment Schedule, on the same day of each payment period thereafter for the balance of the Term. Rent shall be due whether or not Lessee has received any notice that such payments are due. All Rent shall be paid to Lessor at its address set forth on the Equipment Schedule, or as otherwise directed by Lessor in writing. 10. Location; Inspection; Labels. The Equipment shall be delivered to the Equipment Location and, except as used in the Lessee's ordinary course of business, shall not be removed therefrom, (a) without Lessors prior written consent, which consent shall not be unreasonably withheld, and (b) unless Lessor shall be able to adequately protect its interests in the Equipment, including any necessary Uniform Commercial Code filings. Lessor shall have the right to enter upon the Equipment Location and inspect the Equipment at any reasonable time. Lessor may, without notice to Lessee, remove the Equipment if the Equipment is, in the opinion of Lessor, being used beyond its capacity or is in any manner improperly cared for, abused or misused. At Lessors request, Lessee shall affix labels stating that the Equipment is owned by Lessor permanently in a prominent place on the Equipment and shall keep such labels in good repair and condition. 11. Use; Alterations. Lessee shall use the Equipment lawfully and only in the manner for which it was designed and intended and so as to subject it only to ordinary wear and tear. Lessee shall comply with all Applicable Law. Lessee shall immediately notify Lessor in writing of any existing, pending or threatened investigation, inquiry, claim or action by any Governmental Authority in connection with any Applicable Law or Governmental Action which could adversely affect the Equipment or this Lease. Lessee, at its own expense, shall make such alterations, additions or modifications or Improvements to the Equipment as may be required from time to time to meet the requirements of Applicable Law or Governmental Action. Except as otherwise permitted herein, Lessee shall not make any alterations, additions, modifications or improvements to the Equipment without Lessors prior written consent. 12. Repairs and Maintenance. Lessee, at Lessee's own cost and expense, shall (a) keep the Equipment in good repair, good operating condition and working order and in compliance with the manufacturers specifications, and (b) enter into and keep in full force and effect during the Term hereof a maintenance agreement with the manufacturer of the Equipment, or a manufacturer-approved maintenance organization, to maintain, service and repair the Equipment so as to keep the Equipment in as good operating condition and working order as it was when it first became subject to this Lease and in compliance with the manufacturers specifications. Upon Lessors request, Lessee shall furnish Lessor with an executed copy of any such maintenance agreement. An alternate source of maintenance may be used by Lessee with Lessors prior written consent. Lessee, at its own cost and expense and within a reasonable period of time, shall replace any part of any Item of Equipment that becomes worn out, lost, stolen, destroyed, or otherwise rendered permanently unfit or unavailable for use (whether or not such replacement is covered by the aforesaid maintenance agreement), with a replacement part of the same manufacture, value, remaining useful life and utility as the replaced part immediately preceding the replacement (assuming that such replaced part is in the condition required by this Lease). Such replacement part shall be free and clear of all Liens. Notwithstanding the foregoing, this paragraph shall not apply to any Loss or Damage (as defined in Section 16 hereof) of any item of Equipment. 13. Return of Equipment. Upon the expiration (subject to Section 32 hereof and except as otherwise provided in an Equipment Schedule) or earlier termination of this Lease, Lessee, at its sole expense, shall return the MASTER EQUIPMENT LEASE AGREEMENT R94-100.996 4 Equipment to Lessor by delivering such Equipment F.A.S. or F.O.B. to such location or such carrier (packed for shipping) as Lessor shall specify. Lessee agrees that the Equipment, when returned, shall be in the condition required by Section 12 hereof. All components of the Equipment shall have been properly serviced, following the manufacturers written operating and servicing procedures. such that the Equipment is eligible for a manufacturer's standard, full service maintenance contract without Lessors incurring any expense to repair or rehabilitate the Equipment. If, in the opinion of Lessor, any Item of Equipment fails to meet the standards set forth above, Lessee agrees to pay on demand all costs and expenses incurred in connection with repairing such Item of Equipment and restoring it so as to meet such standards, assembling and delivering such item of Equipment. Lessee shall give Lessor ninety (90) days written notice (the "Return Notice") that Lessee is returning the Equipment as provided for above. If Lessee fails to return any Item of Equipment as required hereunder, then, all of Lessee's obligations under this Lease (including, without limitation, Lessee's obligation to pay Rent for such Item of Equipment at the rental then applicable under this Lease) shall continue in full force and effect until such Item of Equipment shall have been returned in the condition required hereunder. 14. Equipment Upgrades/Attachments. In addition to the requirements of Section 11 hereof, Lessee, at its own expense, may from time to time add or install upgrades or attachments to the Equipment during the Term; provided, that such upgrades or attachments (a) are readily removable without causing material damage to the Equipment, (b) do not materially adversely affect the Fair Market Sale Value, the Fair Market Rental Value, residual value, productive capacity, utility or remaining useful life of the Equipment, and (C) do not cause such Equipment to become "limited use property" within the meaning of Revenue Procedure 76-30, 1976-2 C.B. 647 (or such other successor tax provision), as of the applicable delivery date or the time of such upgrade or attachment. Any such upgrades or attachments which are not required by Section 11 hereof and which can be removed without causing damage to or adversely affecting the condition of the Equipment, or reducing the Fair Market Sale Value, the Fair Market Rental Value, residual value, productive capacity, utility or remaining useful life of the Equipment shall remain the property of Lessee; and upon the expiration or earlier termination of this Lease and provided that no Event of Default exists, Lessee may, at its option, remove any such upgrades or attachments and, upon such removal, shall restore the Equipment to the condition required hereunder. 15. Sublease and Assignment (a) WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, LESSEE SHALL NOT (i) ASSIGN, TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS LEASE. THE EQUIPMENT OR ANY INTEREST THEREIN, OR (ii) SUBLET OR LEND THE EQUIPMENT TO, OR PERMIT THE EQUIPMENT TO BE USED BY, ANYONE OTHER THAN LESSEE OR LESSEE'S QUALIFIED EMPLOYEES OR LESSEE'S WHOLLY OWNED SUBSIDIARIES. (b) Lessor, at any time with or without notice to Lessee, may sell, transfer, assign and/or grant a security interest in this Lease, any Equipment Schedule or any Item of Equipment. In any such event, any such purchaser, transferee, assignee or secured party shall have and may exercise all of Lessor's rights hereunder with respect to the items to which any such sale, transfer, assignment and/or security interest relates, and LESSEE SHALL NOT ASSERT AGAINST ANY SUCH PURCHASER, TRANSFEREE, ASSIGNEE OR SECURED PARTY ANY DEFENSE, COUNTERCLAIM OR OFFSET THAT LESSEE MAY HAVE AGAINST LESSOR. Lessee acknowledges that no such sale, transfer, assignment and/or security interest will materially change Lessee's duties hereunder or materially increase its burdens or risks hereunder. Lessee agrees that upon written notice to Lessee of any such sale, transfer, assignment and/or security Interest, Lessee shall acknowledge receipt thereof in writing and shall comply with the directions and demands of Lessor's successor or assign. 16. Loss of or Damage to Equipment. (a) Lessee shall bear the entire risk of loss, theft, destruction, disappearance of or damage to any and all Items of Equipment ("Loss or Damage") from any cause whatsoever during the Term hereof until the Equipment is returned to Lessor in accordance with Section 13 hereof. No Loss or Damage shall relieve Lessee of the obligation to pay Rent or of any other obligation under this Lease. (b) In the event of Loss or Damage to any Item of Equipment, Lessee, at the option of Lessor, shall within thirty (30) days following such Loss or Damage: (1) place such Item of Equipment in good condition and repair, in accordance with the terms hereof; (2) replace such Item of Equipment with replacement equipment (acceptable to Lessor) in as good condition and repair, and with the same value, remaining useful economic life and utility, as such replaced Item of Equipment immediately preceding the Loss or Damage (assuming that such replaced Item of Equipment is the condition required by this Lease), which replacement equipment shall be free and dear of all Liens; or (3) pay to Lessor the sum of (i) all Rent due and owing hereunder with respect to such Item of Equipment (at the time of such payment) plus (ii) the Stipulated Loss Value as of the Rent Payment Date next following the date of such Loss or Damage with respect to such Item of Equipment, as set forth on the Schedule applicable thereto. Upon Lessors receipt of the payment required under subsection (3) above, Lessee shall be entitled to Lessors interest in such Item of Equipment, in its then condition and location, "as is" and "where is", without any warranties, express or implied. If Lessee replaces the Item of Equipment pursuant to subsection (b) above, title to such replacement equipment shall immediately (and without further act) vest in Lessor and thereupon shall be deemed to constitute MASTER EQUIPMENT LEASE AGREEMENT R94-100.996 5 Items of Equipment and be fully subject to this Lease as if originally leased hereunder. If Lessee fails to either restore or replace the Item of Equipment pursuant to subsection (1) or (2) above, respectively, Lessee shall make the payment under subsection (3) above. 17. Insurance. (a) Lessee, at all times during the Term hereof (until the Equipment shall have been returned to Lessor) and at Lessee's own cost and expense, shall maintain (1) insurance against all risks of physical loss or damage to the Equipment (including theft and collision for Equipment consisting of motor vehicles) in an amount not less than the full replacement value thereof or the Stipulated Loss Value thereof, whichever is greater, and (2) comprehensive public liability insurance including blanket contractual liability for personal and bodily injury and property damage in an amount satisfactory to Lessor. (b) All insurance policies required hereunder shall (1) require 30 days' prior written notice of cancellation or material change in coverage to Lessor (any such cancellation or change, as applicable, not being effective until the thirtieth (3Oth) day after the giving of such notice); (2) name "KeyCorp and its subsidiaries and affiliated companies, including KeyCorp Leasing Ltd." as an additional insured under the public liability policies and name Lessor as sole loss payee under the property insurance policies; (3) not require contributions from other policies held by Lessor; (4) waive any right of subrogation against Lessor; (5) in respect of any liability of any of Lessor, except for the insurers' salvage rights in the event of a Loss or Damage, waive the right of such insurers to set-off, to counterclaim or to any other deduction, whether by attachment or otherwise, to the extent of any monies due Lessor under such policies; (6) not require that Lessor pay or be liable for any premiums with respect to such Insurance covered thereby; a) be in full force and effect throughout any geographical areas at any time traversed by any Item of Equipment; and (8) contain breach of warranty provisions providing that, in respect of the interests of Lessor in such policies, the insurance shall not be invalidated by any action or inaction of Lessee or any other person (other than Lessor) and shall insure Lessor regardless of any breach or violation of any warranty, declaration or condition contained in such policies by Lessee or by any other person (other than Lessor). Prior to the first date of delivery of any Item of Equipment hereunder, and thereafter not less than is days prior to the expiration dates of the expiring policies theretofore delivered pursuant to this Section, Lessee shall deliver to Lessor a duplicate original of all policies (or in the case of blanket policies, certificates thereof issued by the insurers thereunder) for the insurance maintained pursuant to this Section. 18. General Tax Indemnification. Lessee shall pay when due and shall indemnify and hold Lessor harmless from and against (on an after-tax basis) any and all taxes, fees, withholdings, levies, imposts, duties, assessments and charges of any kind and nature (together with interest and penalties thereon)(including, without limitation, sales, use, gross receipts, personal property, ad valorem, business and occupational, franchise, value added, leasing, leasing use, documentary, stamp or other taxes) imposed upon or against Lessor, Lessor's assigns, Lessee or any Item of Equipment by any Governmental Authority with respect to any Item of Equipment or the manufacturing, ordering, sale, purchase, shipment, delivery, acceptance or rejection, ownership, titling, registration, leasing, subleasing, possession, use, operation, removal, return or other dispossession thereof or upon the rents, receipts or earnings arising therefrom or upon or with respect to this Lease, excepting only all Federal, state and local taxes on or measured by Lessors net income (other than income tax resulting from making any alterations, improvements, modifications, additions, upgrades, attachments, replacements or substitutions by Lessee). Whenever this Lease terminates as to any Item of Equipment, Lessee shall, upon written request by Lessor, advance to Lessor the amount determined by Lessor to be the personal property or other taxes on said item which are not yet payable, but for which Lessee is responsible, provided Lessor provides Lessee with copies of tax bills supporting Lessor's request. 19. Lessors Right to Perform for Lessee. If Lessee fails to perform or comply with any of its obligations contained herein, Lessor may (but shall not be obligated to do so) itself perform or comply with such obligations, and the amount of the reasonable costs and expenses of Lessor incurred in connection with such performance or compliance, together with interest on such amount at the Late Payment Rate, shall be payable by Lessee to Lessor upon demand. No such performance or compliance by Lessor shall be deemed a waiver of the rights and remedies of Lessor or any assignee of Lessor against Lessee hereunder or be deemed to cure the default of Lessee hereunder. 20. Delinquent Payments; Interest. If Lessee fails to pay any Rent or other sums under this Lease when the same becomes due, Lessee shall pay to Lessor a late charge equal to five percent (5%) of such delinquent amount. Such late charge shall be payable by Lessee upon demand by Lessor and shall be deemed Rent hereunder. In no event shall such late charge exceed the maximum amounts permitted under Applicable Law. 21. Personal Property; Liens. Lessor and Lessee hereby agree that the Equipment is and shall at all times remain, personal property notwithstanding the fact that any Item of Equipment may now be, or hereafter become, in any manner affixed or attached to real property or any improvements thereon. Lessee shall at all times MASTER EQUIPMENT LEASE AGREEMENT R94-100.996 6 keep the Equipment free and clear from all Liens. Lessee shall (i) give Lessor immediate written notice of any such Lien, (ii) promptly, at Lessee's sole cost and expense, take such action as may be necessary to discharge any such Lien, and (iii) indemnify and hold Lessor, on an after- tax basis, harmless from and against any loss or damage caused by any such Lien. 22. Events of Default; Remedies. (a) As used herein, the term "Event of Default" shall mean any of the following events: (1) Lessee fails to pay any Rent within fifteen (15) days after the same shall have become due; (2) Lessee or any Guarantor becomes insolvent or makes an assignment for the benefit of its creditors, which is not dismissed within sixty (60) days; (3) a receiver, trustee, conservator or liquidator of Lessee or any Guarantor or of all or a substantial part of Lessee's or such Guarantors assets is appointed with or without the application or consent of Lessee or such Guarantor, respectively; (4) a petition is filed by or against Lessee or any Guarantor under any bankruptcy, insolvency or similar legislation; (5) Lessee or any Guarantor violates or fails to perform any provision of either this Lease or any other loan, lease or credit agreement or any acquisition or purchase agreement with Lessor or any other party; (6) Lessee violates or fails to perform any covenant or representation made by Lessee herein; (7) any representation or warranty made herein or In any Lease, certificate, financial statement or other statement furnished to Lessor shall prove to be false or misleading in any material respect as of the date on which the same was made; (8) Lessee makes a bulk transfer of all, or substantially all, of its assets; or (9) there is a material adverse change in Lessee's or any Guarantors financial condition since the first Rent Commencement Date of any Equipment Schedule executed in connection herewith. An Event of Default with respect to any Equipment Schedule hereunder shall, at Lessors option, constitute an Event of Default for all Equipment Schedules hereunder and any other agreements between Lessor and Lessee. (b) Upon the occurrence of an Event of Default, Lessor may do one or more of the following as Lessor in ifs sole discretion shall elect: (1) proceed by appropriate court action or actions, either at law or in equity, to enforce performance by Lessee of the applicable covenants of this Lease or to recover damages for the breach thereof; (2) sell any item of Equipment at public or private sale; (3) hold, keep idle or lease to others any Item of Equipment as Lessor in its sole discretion may determine; (4) by notice in writing to Lessee, terminate this Lease, without prejudice to any other remedies hereunder; (5) demand that Lessee, and Lessee shall, upon written demand of Lessor and at Lessee's expense forthwith return all Items of Equipment to Lessor or its order in the manner and condition required by, and otherwise in accordance with all of the provisions of this Lease, except those provisions relating to periods of notice; (6) enter upon the premises of Lessee or other premises where any Item of Equipment may be located and, without notice to Lessee and with or without legal process, take possession of and remove all or any such Items of Equipment without liability to Lessor by reason of such entry or taking possession, and without such action constituting a termination of this Lease unless Lessor notifies Lessee in writing to such effect; (7) by written notice to Lessee specifying a payment date, demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date specified in such notice, as liquidated damages for loss of a bargain and not as a penalty, any unpaid Rent due prior to the payment date specified in such notice plus whichever of the following amounts Lessor, in its sole discretion, shall specify in such notice (together with interest on such amount at the Late Payment Rate from the payment date specified in such notice to the date of actual payment): (i) an amount, with respect to an Item of Equipment, equal to the Rent payable for such Item of Equipment for the remainder of the then current Term thereof, after discounting such Rent to present worth as of the payment date specified in such notice on the basis of a per annum rate of discount equal to five percent (5%) from the respective dates upon which such Rent would have been paid had this Lease not been terminated; or (ii) the Stipulated Loss Value, computed as of the payment date specified in such notice or, if such payment date is not a Rent Payment Date, the Rent Payment Date next following the payment date specified in such notice (provided. however, that, with respect to any item of Equipment returned to or repossessed by Lessor, the amount recoverable under this clause (ii) shall be reduced (but not below zero) by an amount equal to the Fair Market Sales Value (taking into account its actual condition) of such Item of Equipment; (8) cause Lessee, at its expense, to promptly assemble any and all Items of Equipment and return the same to Lessor at such place as Lessor may designate in writing; and (9) exercise any other right or remedy available to Lessor under applicable law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof or to rescind this Lease. In addition, Lessee shall be liable, except as otherwise provided above, for any and all unpaid Rent due hereunder before or during the exercise of any of the foregoing remedies, and for legal fees and other costs and expenses incurred by mason of the occurrence of any Event of Default or the exercise of Lessors remedies with respect thereto, including without limitation the repayment in full of any costs and expenses necessary to be expended in repairing any Item of Equipment in order to cause it to be in compliance with all maintenance and regulatory standards imposed by this Lease. If an Event of Default occurs, to the fullest extent permitted by law, Lessee hereby waives any right to notice of sale and further waives any defenses, rights, offsets or claims against Lessor because of the manner or method of sale or disposition of any items of Equipment. None of Lessors rights or remedies hereunder are intended to be exclusive of, but each shall be cumulative and in addition to any other right or remedy referred to hereunder or otherwise available to Lessor or its assigns at law or in equity. No express or implied waiver by Lessor of any Event of Default shall constitute a waiver of any other Event of Default or a waiver of any of Lessors rights. MASTER EQUIPMENT LEASE AGREEMENT R94-100.996 7 23. Notices. All notices and other communications hereunder shall be in writing and shall be transmitted by hand, overnight courier or certified mail (return receipt requested), postage prepaid. Such notices and other communications shall be addressed to the respective party at the address set forth above or at such other address as any party may from time to time designate by notice duly given in accordance with this Section. Such notices and other communications shall be effective upon receipt. 24. General Indemnification. Lessee shall pay, and shall indemnify and hold Lessor harmless on an aftertax basis from and against, any and all liabilities, causes of action, claims, suits, penalties, damages, losses, costs or expenses (including attorneys' fees), obligations, liabilities, demands and judgments, and Liens, of any nature whatsoever (collectively, a "Liability") arising out of or in any way related to: (a) this Lease or any other written agreement entered into in connection with the transaction contemplated hereby and thereby (including, without limitation, a Purchase Agreement, if any) or any amendment, waiver or modification of any of the foregoing or the enforcement of any of the terms hereof or any of the foregoing, (b) the manufacture, purchase, ownership, selection, acceptance, rejection, possession, lease, sublease, operation, use, maintenance, documenting, inspection, control, loss, damage, destruction, removal, storage, surrender, sale, use, condition, delivery, nondelivery, return or other disposition of or any other matter relating to any Item of Equipment or any part or portion thereof (including, in each case and without limitation, latent or other defects, whether or not discoverable, any claim for patent, trademark or copyright Infringement and any and all Liabilities in any way relating to or arising out of injury to persons, properties or the environment or any and all Liabilities based on strict liability in tort, negligence, breach of warranties or violations of any regulatory law or requirement, (c) a failure to comply fully with any Environmental Law with respect to the Equipment or its operation or use, and (d) Lessee's failure to perform any covenant, or breach of any representation or warranty, hereunder; provided, that the foregoing indemnity shall not extend to the Liabilities to the extent resulting solely from the gross negligence or willful misconduct of Lessor. Lessee shall deliver promptly to Lessor (i) copies of any documents received from the United States Environmental Protection Agency or any state, county or municipal environmental or health agency and (ii) copies of any documents submitted by Lessee or any of its subsidiaries to the United States Environmental Protection Agency or any state, county or municipal environmental or health agency concerning the Equipment or its operation. 25. Severability; Captions. Any provision of this Lease or any Equipment Schedule 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 shall not invalidate or render unenforceable such provision in any other jurisdiction. Captions are intended for convenience or reference only, and shall not be construed to define, limit or describe the scope or intent of any provisions hereof. 26. Lessors Expense. Lessee shall pay all costs and expenses of Lessor, including attorneys' fees and the fees of any collection agencies, incurred by Lessor in enforcing any of the terms, conditions or provisions hereof or in protecting Lessors rights hereunder. 27. Related Equipment Schedules. In the event that any Item of Equipment covered under any Equipment Schedule hereunder may become attached or affixed to, or used in connection with, Equipment covered under another Equipment Schedule hereunder (a "Related Equipment Schedule"), Lessee agrees that, if Lessee elects to exercise a purchase or renewal option under any such Equipment Schedule, or if Lessee elects to return the Equipment under any such Equipment Schedule pursuant to Section 13 hereof, then Lessor, in its sole discretion, may require that all Equipment leased under all Related Equipment Schedules be similarly disposed of. 28. Financial and Other Data. During the Term hereof, Lessee shall furnish Lessor, as soon as available and in any event within 60 days after the end of each quarterly period (except the last) of each fiscal year, and, as soon as available and in any event within 120 days after the last day of each fiscal year, financial statements of Lessee and each Guarantor, in each case certified by an independent public accountant if customarily available or requested. Lessee shall also furnish such other financial reports, information or data as Lessor may reasonably request from time to time. 29. Commitment Fee Requirement. An amount equal to the first. periodic payment of Rent must accompany each Lessee proposal for an Equipment Schedule hereunder. THIS COMMITMENT FEE IS NON-REFUNDABLE; provided, however, that, upon Lessors acceptance of Lessee's proposal to enter into such Equipment Schedule, such commitment fee shall be applied to the first periodic payment of Rent thereunder. MASTER EQUIPMENT LEASE AGREEMENT R94-100.996 8 30. No Affiliation with the Supplier. Lessee hereby represents and warrants to Lessor that, except as previously disclosed in writing to Lessor, neither Lessee nor any of its officers or directors (if a corporation) or partners (if a partnership) has, directly or indirectly, any financial interest in the Supplier. 31. Representation and Warranties of Lessee. Lessee represents and warrants that: (a) Lessee is a corporation duly organized and validly existing in good standing under the laws of the state of its incorporation; (b) the execution, delivery and performance of this Lease and all related Instruments and documents: (1) have been duly authorized by all necessary corporate action on the part of Lessee, (2) do not require the approval of any stockholder, partner, trustee, or holder of any obligations of Lessee except such as have been duly obtained, and (3) do not and will not contravene any law, governmental rule, regulation or order now binding on Lessee, or the charter or by-laws of Lessee, or contravene the provisions of, or constitute a default under, or result in the creation of any lien or encumbrance upon the property of Lessee under, any indenture, mortgage, contract or other agreement to which Lessee is a party or by which it or its property is bound; (c) this Lease and all related instruments and documents, when entered into, will constitute legal, valid and binding obligations of Lessee enforceable against Lessee in accordance with the terms thereof; (d) there are no pending actions or proceedings to which Lessee is a party, and them are no other pending or threatened actions or proceedings of which Lessee has knowledge, before any court, arbitrator or administrative agency, which, either individually or in the aggregate, would adversely affect the financial condition of Lessee, or the ability of Lessee to perform its obligations hereunder; (e) Lessee is not in default under any obligation for the payment of borrowed money, for the deferred purchase price of property or for the payment of any rent under any lease agreement which, either individually or in the aggregate, `would have the same such effect; (f) under the laws of the state(s) in which the Equipment is to be located, the Equipment consists solely of personal property and not fixtures; (g) the financial statements of Lessee (copies of which have been furnished to Lessor) have been prepared in accordance with generally acceptable accounting principles consistently applied ("GAAP"), and fairly present Lessee's financial condition and the results of its operations as of the date of and for the period covered by such statements, and since the date of such statements there has been no material adverse change in such condiftions or operations; (h) the address stated above is the chief place of business and chief executive office, or In the case of individuals, the primary residence, of Lessee; (i) Lessee does not conduct business under a trade, assumed or fictitious name; and (j) the Equipment is being leased hereunder solely for business purposes and that no item of Equipment will be used for personal, family or household purposes. 32. Renewal And Purchase Options. With respect to an Equipment Schedule and the Equipment Group set forth thereon, so long as no Default or Event of Default shall have occurred and is continuing, then, upon not less than ninety (90) days prior written notice to Lessor, (the "Renewal Notice") Lessee may (a) at the expiration of the initial Term, or any Renewal Term, purchase all, but not less than all, of the Equipment Group for the Fair Market Sale Value of such Equipment Group, payable in cash to Lessor upon the expiration of the Initial Term or any Renewal Term, as the case may be, (b) at the expiration of the Initial Term, renew this Lease on a month to month basis at the same Rent payable at the expiration of the Initial Term, or (c) at the expiration of the Initial Term, renew' this Lease for a minimum period of not less than twelve (12) consecutive months at the then current Fair Market Rental Value. If Lessee fails to give Lessor the Return Notice or the Renewal Notice at least ninety (90) days before the expiration of the Initial Term, Lessee shall be deemed to have chosen option (b) above. If Lessee exercises option (a) above, Lessee shall purchase the Equipment "as is" and "where is" and without any warranties, express or implied, by Lessor. 33. Lessee's Waivers. To the extent permitted by Applicable Law, Lessee hereby waives (a) any and all rights and remedies which it may now have or which at any time hereafter may be conferred upon it by statute (including, without limitation, Article 2A of the Uniform Commercial Code, as applicable) or otherwise, (1) which may limit or modify Lessor's rights or remedies hereunder, (2) to terminate, cancel, quit, repudiate or surrender this Lease, except as expressly provided herein; (3) to reject, revoke acceptance or accept partial delivery of the Equipment; (4) to recover damages from Lessor for any breach of warranty or for any other reason provided, however, that no such waiver shall preclude Lessee from asserting any such claim against Lessor in a separate cause of action; or (5) to setoff or deduct all or any part of any claimed damages resulting from Lessor's default, if any, under this Lease. 34. UCC Filings. LESSEE HEREBY APPOINTS LESSOR OR ITS ASSIGNEE AS ITS TRUE AND LAWFUL ATTORNEY IN FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST, TO EXECUTE AND FILE ON BEHALF OF LESSEE ALL UCC FINANCING STATEMENTS WHICH IN LESSOR'S SOLE DISCRETION ARE NECESSARY OR PROPER TO SECURE LESSOR'S INTEREST IN THE EQUIPMENT IN ALL APPLICABLE JURISDICTIONS. 35. Miscellaneous. Time is of the essence with respect to this Lease. Any failure of Lessor to require strict performance by Lessee or any waiver by Lessor of any provision herein shall not be construed as a consent or waiver of any provision of this Lease. Neither this Lease nor any Equipment Schedule may be MASTER EQUIPMENT LEASE AGREEMENT R94-110.996 9 amended except by a writing signed by Lessor and Lessee. This Lease and each Equipment Schedule shall be binding upon, and inure to the benefit of, the parties hereto, their permitted successors and assigns. This Lease will be binding upon Lessor only if executed by a duly authorized officer or representative of Lessor at Lessors principal place of business as set forth above. This Lease, and all other documents (the execution and delivery of which by Lessee is contemplated hereunder), shall be executed on Lessee's behalf by Authorized Signers of Lessee. THIS LEASE IS BEING DELIVERED IN THE STATE OF NEW YORK AND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. 36. Jury Trial Waiver. LESSOR AND LESSEE HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH LESSOR OR LESSEE MAY BE PARTIES ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS LEASE. THIS WAIVER IS MADE KNOWINGLY, WILLINGLY AND VOLUNTARILY BY THE LESSOR AND THE LESSEE WHO EACH ACKNOWLEDGE THAT NO REPRESENTATIONS HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. 37. More than One Lessee. If more than one person or entity executes this Lease, each Equipment Schedule, and all addenda or other documents executed in connection herewith or therewith, as "Lessee," the obligations of "Lessee" contained herein and therein shall be deemed joint and several and all references to "Lessee" shall apply both individually and jointly. 38. Quiet Enjoyment. So long as no Event of Default has occurred and is continuing, Lessee shall peaceably hold and quietly enjoy the Equipment without interruption by Lessor or any person or entity claiming through Lessor. 39. Entire Agreement. This Lease, together with all Equipment Schedules, riders and addenda executed by Lessor and Lessee collectively constitute the entire understanding or agreement between Lessor and Lessee with respect to the leasing of the Equipment, and there is no understanding or agreement, oral or written, which is not set forth herein or therein. By initialing below, Lessee hereby further acknowledges the conditions of this Section 39. Lessee's Initials:______________ 40. Execution in Counterparts. This Master Equipment Lease Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the day and year first above written. Lessor: KEYCORP LEASING LTD. By:_______________________________ Name: Title: Lessee: FIRST ALBANY COMPANIES INC. By:_______________________________ Name: Title: MASTER EQUIPMENT LEASE AGREEMENT R94-100.996 10 CERTIFICATE OF SECRETARY OF FIRST ALBANY COMPANIES INC. I, ____________________, the duly elected and qualified Secretary of FIRST ALBANY COMPANIES INC., (The "Corporation"), do hereby certify: a. That attached hereto as exhibit A are complete and correct copies of resolutions adopted by the Board of Directors of the Corporation, authorizing the actions referred to therein; said resolutions constitute all of the resolutions adopted by Such Board of Directors relating to such matters: such resolutions have not been in any way modified, amended, annulled, rescinded or revoked and am in full force and effect as of the date hereof; and b. The persons listed In Exhibit B attached hereto are duly qualified and acting officers of the Corporation, holding on the date hereof the offices set forth opposite their names and the signatures appearing opposite their names are the genuine signatures of such officers. IN WITNESS WHEREOF, I have hereunto signed my name this ____ day of _____________, 1996. ________________________ Secretary Exhibit B INCUMBENCY CERTlFICATE Name: Office: Signature: __________________________ ___________________________ ___________________________ __________________________ ___________________________ ___________________________ __________________________ ___________________________ ___________________________ __________________________ ___________________________ ___________________________ __________________________ ___________________________ ___________________________ Exhibit A RESOLUTION OF THE BOARD OF DIRECTORS OF FIRST ALBANY COMPANIES INC. DATED__________, 1996. WHEREAS, the Board of Directors of FIRST ALBANY COMPANIES INC. (the "Corporation") desire that the Corporation enter into an equipment leasing transaction with KeyCorp Leasing Ltd., as lessor, for the purpose of leasing the equipment (the "Equipment") described in a Master Equipment Lease Agreement and various equipment schedules from time to time entered into with respect thereto (collectively, the "Lease"); NOW, THEREFORE, BE IT RESOLVED, that (i) the execution and delivery of the Lease by the Corporation and the financing of the acquisition of the Equipment am hereby authorized, approved, ratified and confirmed in all respects, and (ii) the Corporation hereby is, and the Authorized Officers (as defined below) hereby are, authorized and empowered to negotiate and enter into the Lean and such other documents as may be necessary, advisable, or proper in connection with the above transaction, and be it; FURTHER RESOLVED, that _________________________, ___________________ of the Corporation, and __________________________, _________________________of the Corporation (herein the "Authorized Officers') be, and hereby are, authorized to execute and deliver the Lease and any and all certificates, documents, instruments or other papers as may be necessary or desirable in order to consummate the transactions therein contemplated, and that all actions heretofore taken or taken hereinafter by the Authorized Officers in furtherance of the actions herein authorized am ratified, confirmed, adopted and approved in all respects. EX-10.22 6 EXHIBIT 10.22 Agreement of Lease BETWEEN MID.CITY ASSOCIATES Landlord AND FIRST ALBANY COMPANIES INC. Tenant Premises in One Penn Plaza New York, New York 10119 Dated: March 21, 1996 Wien, Malkin & Bettex Leslie Susser, Esq. Attorneys for Landlord Attorney for the Tenant 60 East 42nd Street 6 East 43rd Street - 19th Floor New York, New York 10165 New York, New York 10017-4609 TABLE OF CONTENTS ARTICLE PAGE 1 Rent 2 2 Occupancy 2 S Alterations and Installations 2 4 Repairs 5 5 Requirements of Law; Fire Insurance 6 6 Subordination 7 7 Loss, Damage, Reimbursement, Liability, Etc8 S Destruction-Fire or Other Cause 10 9 Eminent Domain 12 10 Assignment & Subletting 15 11 Access to Demised Premises 20 12 Certificate of Occupancy 21 13 Bankruptcy 21 14 Default 24 15 Remedies of Landlord; Waiver of Redemption25 16 Fees and Expenses; Interest 27 17 No Representations by Landlord 27 18 End of Term 28 19 Quiet Enjoyment 28 20 Definitions 29 21 Adjacent Excavation-Shoring 29 22 Rules and Regulations 30 23 No Waiver 31 24 Waiver of Trial by Jury 32 25 Inability to Perform 32 26 Notices 33 27 Services 34 28 Escalation - Cost of Living Adjustments 42 29 Building Energy Escalation 44 30 Condition of Premises 47 31 Arbitration 48 32 Indemnity 48 33 Vault and Basement Space 48 34 Occupancy and Use by Tenant 49 35 Name of Building 50 36 Invalidity of Any Provision, Etc. 50 37 Captions 51 38 Certificate of Tenant 51 39 Security Deposit 53 40 Broker 54 41 Possession 54 42 Submission of Lease 55 43 Memorandum of Lease 55 44 Successors and Assigns 55 Exhibit A 59 Exhibit B 60 Exhibit C 65 RIDER TABLE OF CONTENTS Article Page 45 Commencement Date; Term; Rent; Initial Alteration Work; Work Contribution 67 46 Tax and Operating Expense Escalation 73 47 Alterations 81 48 Non-Disturbance Agreement 84 49 Renewal Option 85 50 Expansion Space 89 51 Miscellaneous 92 52 Security Deposit/Letter of Credit 96 AGREEMENT OF LEASE made as of this 21st day of March 1996 between Min-Ciry ASSOCIATES, a general partnership with its office at 60 East 42nd Street, New York, New York 10165, hereinafter referred to as "Landlord", or "Lessor", and FIRST ALBANY COMPANIES' INC., a New York corporation with an office at 3O South pearl Street, Albany, New York 12207 hereinafter referred to as "Tenant", or "Lessee". WITNESSETH: Landlord hereby leases to Tenant and Tenant hereby hires from Landlord, in the building known as One Penn Plaza in the Borough of Manhattan, City of New York (hereinafter referred to as the "Building"), the following space: the entire rentable area of the 42nd Floor, consisting of approximately 33,774 rentable square feet (which space is hereinafter referred to as "the demised premises" or "the premises") approximately as shown on the plan or plans or diagram or diagrams annexed hereto as "Exhibit A" (or incorporated by reference into this Lease as though physically attached hereto); for the term of years to commence and to end as in Article 45 provided (plus, if the term hereof commences on a day other than the first day of a month, so many days as are necessary for the term to end on the last day of the last month of the term) or until such term shall sooner cease and terminate as hereinafter provided; at fixed annual rental rates (without electricity) and subject to Article 28 adjustment) of $ set forth in Article 45 hereof. The first month's rent due under this Lease shall be paid by Tenant upon execution of this Lease. * typical retail branch of a 2 Tenant agrees to pay said fixed annual rent in lawful money of the United States, in equal monthly installments in advance on the first day of each calendar month during said term, at the office of Landlord or such other place in the United States of America as Land-lord may designate, without any setoff or deduction whatsoever, except such deduction as may be occasioned by the occurrence of any event permitting or requiring a deduction from or abatement of rent as specifically set forth herein. Should the obligation to pay rent commence on any day other than on the first day of a month, then the fixed rent for the unexpired portion of such month shall be adjusted and prorated on a per diem basis. The parties hereto, for themselves, their heirs, distributees, execu tors, administrators, legal representatives, successors and assigns, hereby covenant as follows: ARTICLE 1 RENT 1.01.Tenant shall pay the fixed annual rent and additional rent as above and as hereinafter provided, in United States legal tender, by cash or by good and sufficient check drawn on a New York City bank which is a member of the New York Clearing House or a successor thereto. All sums other than fixed annual rent payable by Tenant hereunder shall be deemed additional rent and payable on demand, unless other payment dates are hereinafter provided. ARTICLE 2 OCCUPANCY 2.01. Tenant may not use or occupy the demised premises as a *savings bank, state or Federal savings and loan association or commercial bank. or trust Company. Tenant shall use and occupy the demised premises solely for executive and general offices relating to Tenant's business,** and for no other purpose. ARTICLE 3 ALTERATIONS AND INSTALLATIONS 3.01.Tenant shall make no alterations, installations, additions or Improvements in or to the demised premises without Landlord's ______________________ **including for the installation, maintenance and operation in a portion of the demised premises of a securities trading room and computer room relating to Tenant's business and Tenant shall use and occupy the demised premises for no other purpose. Any such installation shall be effected in accordance with the applicable provisions of this Lease, including Articles 3 and 47, and in accordance with all applicable laws, rules and regulations. * Landlord will not unreasonably withhold or delay its approval of Tenant's contractors with respect to nonstructural interior alteration work which does not affect utility services or plumbing or electrical lines or other systems of the Building. Additionally, within ten (10) days after a written request by Tenant, Landlord shall provide Tenant with a list of three (3) additional contractors who are approved for work in the Building, for any work or trade specified by Tenant in its request. 3 prior written consent; all such work shall be done only by contractors or mechanics designated by Landlord as approved for the Building. All such work, alterations, installations, additions and improvements shall be done at Tenant's sole expense and at such times and in such manner as Landlord may from time to time reasonably designate. Prior to commencement of such work, Tenant shall obtain and deliver to Landlord a written letter of authorization, in form satisfactory to Landlord's counsel, signed by all architects, engineers, surveyors and designers to become involved in such work, which shall confirm that*** any of their drawings or plans are to be removed from any filing with governmental authorities on the request of Landlord 3.02. Any mechanic's lien, filed against the demised premises or the Building for work claimed to have been done for or materials claimed to have been furnished to Tenant shall be discharged by Tenant at its expense within thirty (30) days after notice to Tenant, by payment, filing of the bond required by law, or otherwise. Notice is hereby given that Landlord shall not be liable for any labor or materials furnished or to be furnished to Tenant upon credit, and that no mechanic's or other lien for any such labor or materials shall attach to or affect the reversion or other estate or interest of Landlord in and to the demised premises. 3.03. All alterations, installations, additions and improvements made and installed by Landlord, shall become and be the property of Landlord and shall remain upon and be surrendered with the demised premises as a part thereof at the end of the term of this Lease. 3.04. All alterations, installations, additions and improvements made and installed by Tenant, or at Tenant's expense, upon or in the demised premises which are of a permanent nature and which cannot be removed without damage to the demised premises or Building, and all related telephone, telecommunications and data processing equipment and wiring and conduits, supplemental electrical cabling and wiring, and related items, shall become and be the property of Landlord and shall remain upon and be surrendered with the demised premises as a part thereof at the end of the term of this Lease.** except that the Landlord shall have the right and privilege at any time prior to or with three (3) months after the termination of the Lease to serve notice upon Tenant requiring that nay or all of such alterations, installations, additions and improvements, equipment, wiring, cabling and conduits, shall be removed and, in the event of service of such notice, Tenant will, at Tenant's own cost and expense, promptly remove the same in accordance with such request, and restore the premises to its original condition, ordinary wear and tear excepted. The obligations under this Section shall survive the expiration or sooner termination of the term of this Lease. ** See Rider Article 47 for Landlord's right to require Tenant to remove certain installations from the demised premises at the end of the term of this Lease. *** in the event such work is discontinued or abandoned, 4 3.05. Where furnished by or at the expense of Tenant, all furniture, furnishings and trade fixtures, including without limitation, murals, business machines and equipment, counters, screens, grille work, special paneled doors, cages, partitions, metal railings, closets, paneling, lighting fixtures and equipment, drinking fountains, refrigerators, and any other movable property shall remain the property of Tenant which may at its option remove all or any part thereof at any time prior to the expiration of the term of this Lease. In case Tenant shall decide not to remove any part of such property, Tenant shall notify Landlord in writing not less than three (3) months prior to the expiration of the term of this Lease, specifying the items of property which it has decided not to remove. If, within thirty (30) days after the service of such notice, Landlord shall request Tenant to remove any of the said property, Tenant shall at its expense remove the same in accordance with such request. As to such property, which Landlord does not request Tenant to remove, the same shall be, if left by Tenant, deemed abandoned by Tenant and thereupon the same shall become the property of the Landlord. 3.06. If any alterations, installations, additions, improvements or other property which Tenant shall have the right to remove or be requested by Landlord to remove as provided* hereinabove (herein in this Section 3.06 called the "property") are not removed on or prior to the expiration of the term of this Lease, Landlord shall have the right to remove said property and to dispose of the same without accountability to Tenant and at the sole and reasonable cost and expense of Tenant. In case of any damage to the demised premises or the Building resulting from the removal of the property, Tenant shall repair such damage or, in default thereof, shall reimburse Landlord for Landlord's reasonable cost in repairing such damage. The obligations under this Section shall survive the expiration or sooner termination of the term of this Lease. 3.07.Tenant shall keep records of Tenant's alterations, installations, additions and improvements, and the cost thereof** Tenant shall, within 45 days after demand by Landlord, furnish to Landlord copies of such records and cost if Landlord shall require same in connection with any proceeding to reduce the assessed valuation of the Building, or in connection with any proceeding instituted pursuant to Article 9 hereof. * in Articles 47 or 51 of this Lease ** , for a period of three (3) years after the completion of same. * and subject to Section 7.05 of this Lease, ** within thirty (30) days after written notice of same (except in an emergency. in which case no such notice shall be required), 5 ARTICLE 4 REPAIRS 4.01. Tenant shall take good care of the demised premises and the fixtures and appurtenances therein and shall promptly, at its sole cost and expense, make all repairs and replacements, necessary to keep the demised premises in good working order and condition including structural repairs when these which are made necessary by the act, omission or negligence of Tenant or its agents or employees (subject to Section 7.05 hereof). Except as otherwise provided in Section 3.05 of this Lease,* all damage or injury to the demised premises and to its fixtures, glass, appurtenances and equipment or to the Building or to its fixtures, glass, appurtenances and equipment caused by the moving of Tenant's property in or out of the Building, or by the installation or use of Tenant's property, or by the use of the demised premises in a manner contrary to the purposes for which same are leased to Tenant, shall be repaired, restored or replaced promptly by Tenant at its sole cost and expense, which repairs, restorations and replacements shall be in quality and class equal to the original work or installations. If Tenant fails to make such repairs, restorations or replacements**, same may be made by Landlord at the expense of Tenant and such expense shall be collectible as additional rent and shall be paid by Tenant within 15 days after rendition of a bill therefor. Landlord, at Landlord's expense, shall effect all necessary repairs and replacements in and to the demised premises which are not the obligation of Tenant hereunder.*** 4.02. Tenant shall not place a load upon any floor of the demised premises exceeding the floor load per square foot area which such floor was designed to carry and which is allowed by law. Landlord certifies that the floor of the demised premises will carry 50 pounds live load per square foot of floor space and 20 pounds for partitions per square foot of floor space. If Tenant shall desire a floor load in excess of that set forth above, Landlord agrees (provided Landlord's architects, in their sole discretion, find that the work necessary to increase such floor load does not adversely affect the structure of the Building, and further provided that such work will not interfere with the amount or availability of any space adjoining alongside, above or below the demised premises or unreasonably interfere with the occupancy of other tenants in the Building) to strengthen and reinforce the same so as to give the live load desired provided Tenant shall submit to Landlord the plans showing the locations of and the ______________________ *** including, without limitation, any structural repair or replacement or any repair or replacement to the Building HVAC, electrical, mechanical or plumbing systems serving the demised premises, including leaks in the windows, and any repair or replacement to the exterior and public portions of the Building,**** **** provided (subject to Section 7.05 of this Lease) such repair or replacement is not made necessary by the act, omission or negligence of Tenant. ______________________ *comparable first class building in mid-town Manhattan. **, unless such work is required to remedy a condition that threatens the health or safety of any occupant of the demised premises, in which case Landlord shall employ so-called overtime labor to remedy such condition. 6 desired floor live load for the areas in question and provided further that Tenant shall agree to pay for or reimburse Landlord on demand for the cost of such strengthening and reinforcement as well as any other costs to and expenses of Landlord occasioned by or resulting from such strengthening or reinforcement. 4.03. Business machines and mechanical equipment belonging to Tenant which cause vibration, noise, cold or heat that may be transmitted to the Building structure or to any leased space to such a degree as to be reasonably objectionable to Landlord or to any other tenant in the Building shall be placed and maintained by Tenant at its expense in settings of cork, rubber or spring type vibration eliminators sufficient to absorb and prevent such vibration or noise, cold or heat. The parties hereto recognize that the operation of elevators, air conditioning and heating equipment will cause some vibration, noise, heat or cold which may be transmitted to other parts of the Building and demised premises. Landlord shall be under no obligation to endeavor to reduce such vibration, noise, heat or cold beyond what is customary in current good building practice for a building such as One Penn Plaza.* 4.04. Except as provided in Article 25 hereof and except as otherwise provided in this Lease there shall be no allowance to Tenant for a diminution of rental value and no liability on the part of Landlord by reason of inconvenience, annoyance or injury to business arising from the making of any repairs, alterations, additions or improvements in or to any portion of the Building or the demised premises or in or to fixtures, appurtenances or equipment thereof, provided that Landlord shall use reasonable diligence seek to minimize any interference with Tenant's business operations. Tenant understands that work will be effected on business days during normal business hours ** ARTICLE 5 REQUIREMENTS OF LAW; FIRE INSURANCE 5.01. Tenant, at its expense, shall comply with all laws, orders and regulations of Federal, State, County and Municipal authorities, and with any direction of any public officer or officers, pursuant to law, which shall impose any violation, order or duty upon Landlord or Tenant with respect to the demised premises, or the use or occupation thereof 5.02. Tenant shall not do or permit to be done any act or thing upon said premises, which will invalidate or be in conflict with New York Standard fire insurance policies covering the Building, and fixtures and property therein, or which**** would increase the rate of fire ***provided such compliance is necessitated by Tenant's particular manner of use of the demised premises (as distinguished from general office use thereof.) Landlord agrees that it will comply with all laws, rules and regulations applicable to the demised premises or the Building, other than such laws, rules and regulations (i) with which Tenant is expressly obligated to comply by the terms of this Lease or (ii) which by the express provisions thereof are the direct obligation of Tenant. (See Section 14.04 for Tenant's right to contest legal requirements.) ****(based on Tenant's particular manner of use of the demised premises, as distinguished from general and executive office use thereof) 7 insurance applicable to the Building to an amount higher than it otherwise would be; and Tenant shall neither* do nor permit to be done any act or thing upon said premises which shall or might subject Landlord to any liability or responsibility for injury to any person or persons or to property by reason of any business or operation being carried on upon said premises; but nothing in this Section 5.02 shall prevent Tenant's use of the demised premises for the purposes stated in Article 2 hereof. 5.03. If as a result of** any act or omission by Tenant or violation of this Lease, the rate of fire insurance applicable to the Building shall be increased to an amount higher than it otherwise would be, Tenant shall reimburse Landlord for all increases of Landlord's fire insurance premiums so caused; such reimbursement to be additional rent payable upon the first day of the month following any outlay by Landlord for such increased fire insurance premiums. In any action or proceeding wherein Landlord and Tenant are parties, a schedule or "make up" of rates for the Building or demised premises issued by the body making fire insurance rates for said premises, shall be presumptive evidence of the facts therein stated and of the several items and charges in the fire insurance rate then applicable to said premises. ARTICLE 6 SUBORDINAT!ON 6.01. This Lease is subject and subordinate to that certain Agreement Restating Indenture of Lease, dated July 10, 1970 between The Bowery Savings Bank, as Lessor, and Mid-City Associates, as Lessee (hereinafter sometimes called "The Ground Lease") and to the rights of Lessor thereunder, and to al] first mortgages which may now or hereafter encumber The Ground Lease, and to all renewals, modifications, consolidations, replacements and extensions of The Ground Lease and of such mortgages. 6.02. In the event of a termination of The Ground Lease, or if the interests of Landlord under this Lease are transferred by reason of or assigned in lieu of foreclosure or other proceedings for enforcement of any such mortgage, or if the holder of any such mortgage acquires a lease in substitution therefor, then the Tenant under this Lease will, at the option to be exercised in writing by the Lessor under said Ground Lease or such purchaser, assignee or lessee, as the case may be, (i) attorn to it and will perform for its benefit all the terms, covenants and conditions of this Lease on the Tenant's part to be performed with the same force and effect as if said Lessor or such * knowingly or negligently **Tenant's particular manner of use of the demised premises (as distinguished from general office use thereof) 8 purchaser, assignee or lessee, were the Landlord originally named in this Lease, or (ii) enter into a new lease with said Lessor or such purchaser, assignee or lessee, as Landlord, for the remaining term of this Lease and otherwise on the same terms and conditions and with the same options then remaining. ARTICLE 7 LOSS, DAMAGE, REIMBURSEMENT, LIABILITY, ETC. 7.01. Landlord or its agents shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain or snow or leaks from any part of the Building, or from the pipes, appliances or plumbing works or from the roof, street or subsurface or from any other place or by dampness or by any other cause of whatsoever nature, unless any of the foregoing shall be caused by or due to the negligence of Landlord, its agents, servants or employees. 7.02. *Tenant shall reimburse Landlord for all expense, damages or fines incurred or suffered by Landlord, and for which Landlord has not been or will not be reimburse4 by insurance, by reason of any breach, violation or nonperformance by Tenant, or its agents, servants or employees, of any covenant or provision of this Lease, or by reason of damage to persons or property caused by moving property of or for Tenant in or out of the Building, or by the installation or removal of furniture or other property of or for Tenant except as provided in Section 3.05 of this Lease, or by reason of or arising out of the carelessness, negligence or improper conduct of Tenant, or its agents, servants or employees, in the use or occupancy of the demised premises. 7.08. Tenant shall give Landlord notice in case of fire or accidents in the demised premises promptly after Tenant is aware of such event. 7.04. Tenant agrees to look solely to Landlord's estate and interest in the land and Building, or the lease of the Building, or of the land and Building, and the demised premises*** the satisfaction of any right or remedy of tenant for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord, in the event of any liability by Landlord, and no other property or assets of Landlord shall be subject to levy, execution, attachment, or other enforcement procedure for the satisfaction of Tenant's remedies *Subject to section 7.05 of this Lease, ** (or the proceeds thereof, including the net proceeds from insurance or any condemnation award) 9 under or with respect to this Lease, the relationship of Landlord and tenant hereunder, or Tenant's use and occupancy of the demised premises, or any other liability of Landlord to Tenant (except for negligence). 7.05. (a) Landlord agrees that, if obtainable at no additional cost, it will include in its fire insurance policies appropriate clauses pursuant to which the insurance companies (i) waive all right of subrogation against Tenant with respect 10 losses payable under such policies and/or (ii) agree that such policies shall not be invalidated should the insured waive in writing prior to a loss any or all right of recovery against any party for losses covered by such policies. But should any additional premiums be exacted for any such clause or clauses, Landlord shall be released from the obligation hereby imposed unless Tenant shall agree to pay such additional premium. (b) Tenant agrees to include, if obtainable at no additional cost, in its fire insurance policy or policies on its furniture, furnish ings, fixtures and other property removable by Tenant under the pro- visions of its lease of space in the Building appropriate clauses pursuant to which the insurance company or companies (i) waive the right of subrogation against Landlord and any tenant of space in the Building who shall have executed a similar waiver as set forth in this section 7.05(b), with respect to losses payable under such policy or policies and/or (ii) agree that such policy or policies shall not be invalidated should the insured waive in writing prior to a loss any or all right of recovery against any party for losses covered by such policy or policies. But should any additional premium be exacted for any such clause or clauses, Tenant shall be released from the obligation hereby imposed unless Landlord or the other tenants shall agree to pay such additional premium. (c) Provided that Landlord's right of full recovery under its policy or policies aforesaid is not adversely affected or prejudiced thereby, Landlord hereby waives any and all right of recovery which it might otherwise have against Tenant, its servants, agents and employees, for loss or damage occurring to the Building and the fixtures, appurtenances and equipment therein, to the extent the same is covered by Landlord's insurance, notwithstanding that such loss or damage may result from the negligence or fault of Tenant, its servants, agents or employees. Provided that Tenant's right of full recovery under its aforesaid policy or policies is not adversely affected or prejudiced thereby, Tenant hereby waives any and all right of 10 recovery which it might otherwise have against Landlord, its servants, and employees, and against every other tenant in the Building who shall have executed a similar waiver as set forth in this Section 7.05(c) for loss or damage to Tenant's furniture, furnishings, fixtures and other property removable by Tenant under the provisions hereof to the extent that same is covered by Tenant's insurance, notwithstanding that such loss or damage may result from the negligence or fault of Landlord, its servants, agents or employees, or such other tenant and the servants, agents or employees thereof. (d) Landlord and Tenant hereby agree to advise the other promptly if the clauses to be included in their respective insurance policies pursuant to subparagraphs (a) and (b) above cannot be obtained. Landlord and Tenant hereby also agree to notify the other promptly of any cancellation or change of the terms of any such policy which would affect such clauses. ARTICLE 8 DESTRUCTION-FIRE OR OTHER CAUSE 8.01. If the Building shall be partially damaged or destroyed or if the demised premises shall be partially or totally damaged or destroyed by fire, casualty or other cause, then, whether or not the damage or destruction shall have resulted from the fault or neglect of Tenant, or its servants, employees, agents, visitors or licensees (and if this Lease shall not have been canceled as in this article hereinafter provided), Landlord will repair the damage, and restore, replace, and rebuild the Building and the demised premises at its expense, with reasonable dispatch and continuity after notice to it of the damage or destruction; provided, however, that Landlord shall not be required to repair or replace any installation made by Tenant.* If the demised premises shall be partially damaged or partially destroyed, the rent and additional rent payable hereunder shall be abated to the extent that the demised premises shall have been rendered untenantable or unfit for Tenant's use and Tenant does not occupy such damaged or destroyed part of the premises on other than an emergency basis for the period from the date of such damage or destruction to the date that the damage shall be repaired or restored. If the demised premises or a major part thereof shall be totally, or substantially totally, damaged or destroyed or rendered completely, or substantially completely, Untenantable on account of fire, casualty or other cause, the rent and additional rent shall completely abate as of the date of the damage or * which is not covered by Landlord's fire insurance policy for the Building. 11 destruction and until Landlord shall repair, restore, replace and rebuild the demised premises (subject to Landlord's right to elect not to restore the same as hereinafter provided); provided, however, that should Tenant reoccupy a portion of the demised premises for the purpose of conducting business during the period the restoration work is taking place and prior to the date that the same is made completely tenantable, rent and additional rent shall be apportioned and payable by Tenant in proportion to the part of the demised premises occupied by it Nevertheless, in case of any substantial damage or destruction to the demised premises, Tenant, in addition to and without waiver of any other rights or remedies available to it, may cancel this Lease by written notice to Landlord, if (i) within 60 days from the date of the damage or destruction, Landlord does not file a proof of loss with its insurer; (ii) within 90 days of the date of damage or destruction Landlord does not let a contract or contracts which shall provide for the complete restoration of the demised one year premises within a period of one year two years from the date of the damage or destruction; (iii) work un3er. such contract or contracts has not commenced within 120 days of the date of said damage or destruction; or (iv) said work is not prosecuted with reasonable diligence to its completion; provided that Tenant shall not be entitled to cancel this Lease pursuant to this sentence more than thirty (30) days after Landlord shall have given written notice to Tenant that the state of facts specified in clause (i), (ii) or (iii) of this sentence, as the case may be, has occurred. The period for the commencement or completion of the required repairs and restoration work shall be extended by the number of days lost (not to exceed, however, nine months one year) in the event such loss results from strike, act of God, war, governmental action, national or state or municipal emergency, or any cause beyond the reasonable control of Landlord. * 8.02. In case the Building or the demised premises shall be substantially damaged or destroyed by fire or other cause at any time during the last two years of the term of this Lease, then Landlord or Tenant may cancel this Lease upon written notice to the other party Tenant given within ninety (90) days after such damage or destruction. 8.03. If the Building shall be so damaged at any time during the term of this Lease that Landlord shall decide to demolish it or to rebuild it, then in either of such events, Landlord may, within ninety (90) days after such fire or other casualty, elect to cancel this Lease by giving Tenant a notice in writing of such decision, and thereupon the *Notwithstanding the foregoing, in case of any substantial damage or destruction to the demised premises, and if Landlord, subject to Section 25.01 of this Lease (except that such one (1) year period shall not be extended by more than nine (9) months as a result of any such occurrence), shall not substantially complete such repair and restoration work within one (1) year after that date of the fire or other casualty, then Tenant may terminate this lease by thirty (30) days prior to written notice to Landlord (unless such work is substantially completed within thirty (30) days after Tenant gives such termination notice, in which case such termination notice shall be null and void and of nor force and effect.) *In connection with repair or restoration work in any portion of the demised premises, Landlord will use reasonable efforts to minimize any interference with Tenant's business operations in the remaining portion of the demised premises. Tenant understands that work will be effected on business days during normal business hours, unless such work is required to remedy a condition that threatens the health or safety of any occupant, in which case Landlord shall employ so-called overtime labor to remedy such condition. 12 term of this Lease shall expire by lapse of time upon the thirtieth day after such notice is given, and Tenant shall vacate the demised premises and surrender the same to Landlord. 8.04. In the event of the termination of this Lease pursuant to the provisions of this Article, this Lease shall expire as fully and completely on the date fixed in such notice of termination as if that were the date definitely fixed for the expiration of this Lease, but the rent and additional rent shall be apportioned and shall be paid up to and including the date of such damage or destruction, and any prepaid rent or prepaid additional rent shall be refunded to Tenant. 8.05. No damages, compensation or claim shall be payable by Landlord for inconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the demised premises or of the Building. * 8.06. The provisions of this Article shall be considered an express agreement governing any case of damage or destructi6n of the Building or the demised premises by fire or other casualty and Section 227 of the Real Property Law of the State of New York1 and any other law of like import now or hereafter in force providing for such contingency shall have no application. ARTICLE 9 EMINENT DOMAIN 9.01. In the event that the whole of the demised premises shall be lawfully condemned or taken in any manner for any public or quasi- public use or purpose, this Lease and the term and estate hereby granted shall forthwith cease and terminate as of the date of vesting of title (hereinafter referred to as the "date of taking"), and Tenant shall have no claim against Landlord for, or make any claim for, the value of any unexpired term of this Lease, and the rent and additional rent shall be apportioned as of such date. 9.02. In the event that any part of the demised premises shall be so condemned or taken, then this Lease shall be and remain unaffected by such condemnation or taking, except that the rent and additional rent allocable to the part so taken shall be apportioned as of the date of taking provided, however, that Tenant may elect to cancel this Lease in the event that*** more than twenty-five (25%) of the demised premises should be so condemned or taken, provided such notice of election is given by Tenant to Landlord not later than thirty ** such condemnation or taking results in Tenant being unable to reasonably use the demised premises for the purposes permitted hereunder (a "Material Taking"), 13 (30) days after the date when title shall vest in the condemning authority. Upon the giving of such notice, this Lease shall terminate on the thirtieth day following the date of such notice and the rent and additional rent shall be apportioned as of such termination date. Upon such partial taking and this Lease continuing in force as to any part of the demised premises, the rent and additional rent shall be diminished by an amount representing the part of said rent and additional rent properly applicable to the portion or portions of the demised premises which may be so condemned or taken. If as a result of the partial taking (and this Lease continuing in force as to the part of the demised premises not so taken), any part of the demised premises not taken is damaged. Landlord agrees with reasonable promptness to commence the work necessary to restore the damaged portion to the condition existing immediately prior to the taking, and prosecute the same with reasonable diligence to its completion. In the event Landlord and Tenant are unable to agree as to the amount by which the rent and additional rent shall be diminished, the matter shall be determined by arbitration in accordance with the provisions of Article 31 of this Lease. Pending such determination, Tenant shall pay to Landlord the rent as fixed by Landlord, subject to adjustment in accordance with the arbitration. 9.03. Nothing hereinabove provided shall preclude Tenant from appearing, claiming, proving and receiving in the condemnation proceeding, Tenant's moving expenses, and the value of Tenant's fixtures, or tenant1s alterations, installations and improvements which do not become part of the Building, or property of Landlord, provided Landlord's award is not thereby diminished. 9.04. In the event* that more than twenty-five (25%) of the demised premises shall be so taken and Tenant shall not have elected to cancel this Lease as above provided, the entire award for a partial taking shall be paid to Landlord, and Landlord, at Landlord's own expense, shall to the extent of the net proceeds (after deducting reasonable expenses including attorneys' and appraisers' fees) of the award restore the unaffected part of the Building to substantially the same condition and tenantability as existed prior to the taking. Until said unaffected portion is restored, Tenant shall be entitled to a proportionate abatement of rent for that portion of the premises which is being restored and is not usable until the completion of the restoration or until the said portion of the premises is used by Tenant, whichever occurs sooner. Said unaffected portion shall be restored * of a Material Taking t k 14 within a reasonable time but not more than six (6) months after the taking provided, however, if Landlord is delayed by strike, lockout, the elements, or other causes beyond Landlord's control, the time for completion shall be extended for a period equivalent to the delay. Should Landlord fail to complete the restoration within the said six (6) months or the time as extended, Tenant may elect to cancel this Lease and the term hereby granted in the manner and with the same results as set forth in the next two sentences of this Section 9.04. If such partial taking shall occur in the last two years of the term hereby granted, either party, irrespective of the area of the space remaining, may elect to cancel this Lease and the term hereby granted, provided such party shall, within thirty (30) days after. such taking, give notice to that effect, and upon the giving of such notice, the rent shall be apportioned and paid to the date of expiration of the term specified and this Lease and the term hereby granted shall cease, expire and come to an end upon the expiration of said thirty days specified in said notice. If either party shall so elect to end this Lease and the term hereby granted, Landlord need not restore any part of the demised premises and the entire award for partial condemnation shall be paid to Landlord, and Tenant shall have no claim to any part thereof, except as to the items set forth in Section 9.03 where same are applicable. 9.05. In the event a]l or any part of the demised premises shall be taken for a temporary use or occupancy, (a) demised term shall not be reduced or affected in any way except as provided in (d) below, (b) Tenant shall continue to be responsible for all of its obligations hereunder and shall continue to pay all rents and additional rents when due, (c) Tenant shall be entitled to receive that portion of the award which represents reimbursement for the cost of restoration of the demised premises, compensation for the use and occupancy of the demised premises and for any taking of Tenant's property, except that, if the temporary period of taking shall extend beyond the expiration of the term of this Lease, the portion of the award representing compensation for the use and occupancy of the demised premises shall be apportioned between Landlord and Tenant as of said expiration date of said term and Landlord shall receive that portion of the award which represents reimbursements for the cost of restoration of the demised premises, and (d) if the date of temporary taking of more than 25% of the demised premises shall occur during the last three (3) years of the term of this Lease. Tenant may elect to cancel this Lease by notice of election given by Tenant to Landlord not later than thirty (30) days after the date when title shall vest in the condemning authority. Upon the giving of such notice, this Lease shall terminate on the thirtieth day following the date of such notice and the rent and additional rent shall be apportioned as of such termination date, with Landlord, and not * (except as otherwise specifically provided in this Article). ** (except as otherwise specifically provided in this Article) *** but with a full release of Tenant from any and all obligations accruing under this Lease from and after the effective date of such assignment, 15 Tenant, to receive the portion of the award which represents reimburse ment for the cost of restoration of the demised premises and the portion of the award representing compensation for the use and occupancy of the demised premises for the time subsequent to the cancellation date. ARTICLE 10 ASSIGNMENT AND SUBLETTING 10.01. Tenant, for itself, its heirs, distributees, executors, admin istrators, legal representatives, successors and assigns, expressly covenants that it shall not assign, mortgage or encumber this Lease, nor underlet, or suffer or permit the demised premises or any part thereof to be used or occupied by others, without the prior written consent of Landlord in each instance.* The merger or consolidation of a corporate lessee or sublessee where the net worth of the resulting corporation is less than the net worth of the lessee or sublessee immediately prior to such merger or consolidation shall be deemed an assignment of this lease or of such sublease. If this Lease be assigned, or if the demised premises or any part thereof be underlet or occupied by anybody other than Tenant, Landlord may, after default by Tenant, collect rent from the assignee, undertenant or occupant, and apply the net amount collected to the rent herein reserved, but no assignment, underletting, occupancy or collection shall be deemed a waiver of the provisions hereof, the acceptance of the assignee, undertenant or occupant as tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. The consent by Landlord to an assignment or underletting shall not in any wise be construed to relieve Tenant from obtaining the express consent in writing of Landlord to any further assignment or underletting. In no event shall any permitted sublessee assign or encumber its sublease or further sublet all or any portion of its sublet space, or otherwise suffer or permit the sublet space or any part thereof to be used or occupied by others, without Landlord's prior written consent in each instance. A modification, amendment or extension of a sublease shall be deemed a sublease. 10.02. If Tenant desires to assign this Lease or to sublet all or any portion of the demised premises, it shall** first submit in writing to Landlord the documents described in Section 10.03 hereof, and shall offer in writing, (i) with respect to a prospective assignment, to assign this Lease to Landlord without any payment of moneys or other consideration therefor,* or, (ii) with respect to a prospective subletting, to sublet to Landlord the portion of the demised premises involved "Leaseback Area") for the term specified by Tenant in its offer and at the lower of (a) Tenant's proposed subrental or (b) at the same rate of fixed rent and additional rent; and otherwise on the same terms, 16 covenants and conditions (including provisions relating to escalation rents), as are contained herein and as are allocable and applicable to the portion of the demised premises to be covered by such subletting. The offer shall specify the date when the Leaseback Area will be made available to Landlord, which date shall be in no event earlier than ninety (90) sixty (60) days nor later than one hundred eighty (180) days following the acceptance of the offer. If an offer of sublease is made, it shall in addition specify the duration of the term of the proposed sublease as fixed by Tenant, except that if the proposed sublease will result in all or substantially all of the demised premises being sublet, then Landlord shall have the option to extend the term of the proposed sublease for the balance of the term of this Lease less one (1) day. Landlord shall have a period of thirty (30) ninety (90) days from the receipt of such offer to either accept or reject the same. Landlord or its agents or designees shall have the right, during such time, at reasonable times during business hours, to enter the demised premises to exhibit same to prospective subtenants. If Landlord shall accept such offer, Tenant shall then execute and deliver to Landlord, or to anyone designated or named by Landlord, an assignment or sublease, as the case may be, in either case in a form reasonably satisfactory to Landlord's counsel. If a sublease is so made to Landlord or its designee, it shall expressly: (a) permit Landlord to make further subleases of all or any part of the Leaseback Area and (at no cost or expense to Tenant) to make and authorize any and all changes, alterations, installations and improvements in such space as Landlord may deem necessary for such subletting, at Landlord's expense; (b) provide that Tenant will at all times permit reasonably appropriate means of ingress to and egress from the Leaseback Area; (c) negate any intention that the estate created under such sublease be merged with any other estate held by either of the parties; (d) provide that Landlord shall accent the Leaseback Area "as is" except that Landlord, at Landlord's Tenant's expense, shall perform all such work and make all such alterations as may be required physically to separate the Leaseback Area from the remainder of the demised premises and to permit lawful occupancy, it being * letter of intent with respect to ** (see Section 10.04 below), provided that the material terms thereof are substantially the same as those set forth in the letter of intent described in section 10.03 above. ***, provided that the material terms thereof are substantially the same as those set forth in the letter of intent described in Section 10.03 above. 17 intended that Tenant shall have no other cost or expense in connection with the subletting of the Leaseback Area; (e) provide that at the expiration of the term of such sublease Tenant will accept the Leaseback Area in its then existing condition, subject to the obligations of Landlord to make such repairs thereto as may be necessary to preserve the Leaseback Area in good order and condition, ordinary wear and tear excepted. Landlord shall indemnify and save Tenant harmless from all ob ligations under this Lease as to the Leaseback Area during the period of time it is so sublet, except for fixed annual rent and additional rents, if any, due under the within Lease, which are in excess of the rent and additional rents due under such sublease. Subject to the foregoing, performance by Landlord, or its designee, under a sublease of the Leaseback Area shall be deemed performance by Tenant of any similar obligation under this Lease and any default under any such sublease shall not give rise to a default under a similar obligation contained in this Lease, nor shall Tenant be liable for any default under this Lease or deemed to be in default hereunder if such default is occasioned by or arises from any act or omission of the tenant under such sublease or is occasioned by or arises from any act or omission of any occupant holding under or pursuant to any such sublease. 10.03. If Tenant requests Landlord's consent to a specific assign ment or subletting, it shall submit in writing to Landlord (i) the name and address of the proposed assignee or sublessee, (ii) a duly executed counterpart of *the proposed agreement of assignment or sublease*** (iii) reasonably satisfactory information as to the nature and character of the business of the proposed assignee or sublessee, and as to the nature of its proposed use of the space, and (iv) banking, financial or other credit information relating to the proposed assignee or sublessee reasonably sufficient to enable Landlord to determine the financial responsibility and character of the proposed assignee or sublessee. 10.04. If Landlord shall not have accepted Tenant's offer, as provided in Section 10.02, then Landlord will not unreasonably withhold condition or delay its consent to Tenant's request for consent to such specific assignment or subletting*** (where Tenant will not move the conduct of its business to another building in New York City in violation of Article 34 hereof). ****Any consent of Landlord under this Article shall be subject to the terms of this Article and conditional upon there being no default by Tenant, beyond any grace period, **** Additionally, Landlord shall respond to Tenant with thirty (30) days after Tenant's offer and request to the specific assignment or subletting. If Landlord fails to respond with such thirty (30) day period, then Tenant may notify Landlord in writing of such failure. If Landlord again fails to respond with five (5) business days after it receives such notice, then Landlord shall be deemed to have consented to such request (provided such notice by Tenant reminds Landlord in writing that its failure to respond with such five (5) business day period will constitute such deemed consent by Landlord). * the costs of Tenant, if any, in effecting the transaction, including reasonable alteration costs, commissions, advertising costs and legal fees) ** When the primary purpose of the transaction is to transfer this lease; the 18 under any of the material terms, covenants and conditions of this Lease at the time that Landlord's consent to any subletting or assignment is requested and on the date of the commencement of the term of any proposed sublease & the effective date of any proposed assignment. 10.05.Tenant understands and agrees that whether Landlord's written consent thereto is required or not required, no assignment or subletting shall be effective unless Tenant causes to be delivered to Landlord a duly executed copy of the sublease or assignment (unless it was theretofore delivered to Landlord). Any such sublease shall provide that the sublessee shall comply with all applicable terms and conditions of this Lease to be performed by the Tenant hereunder. Any such assignment of lease shall contain an assumption by the assignee of all of the terms, covenants and conditions of this Lease to be performed by the Tenant. 10.06.If Landlord shall not have accepted any required Tenant's offer and/or Tenant effects any assignment or subletting then Tenant thereafter shall pay to Landlord a sum equal to (a) fifty percent (50%) of any rent or other consideration paid to Tenant by any subtenant which (after deducting the costs of Tenant, if any, in effecting the subletting, including reasonable alteration costs, commissions and legal fees) is in excess of the rent allocable to the subleased space which is then being paid by Tenant to Landlord pursuant to the terms hereof; and (b) fifty percent (50%) of any other profit or gain (after deducting* any necessary expenses incurred) realized by Tenant from any such subletting or assignment. All sums payable hereunder by Tenant shall be payable to Landlord as additional rent upon receipt thereof by Tenant. 10.07.Anything herein contained to the contrary notwithstanding: (a) Tenant shall not advertise (but may list with-brokers) its space for assignment or subletting at a rental rate lower than the greater of the then Building rental rate for such space. Or the rental rate then being paid by Tenant to Landlord. (b) **The transfer of a majority of the issued and outstanding capital stock of, or of a controlling interest in, any corporate tenant or subtenant of this Lease or a majority of the total interest in any partnership tenant or subtenant, however accomplished, and whether in a single transaction or in a series of related or unrelated transactions. shall be deemed an assignment of this Lease or of such sublease.*** The transfer of outstanding capital stock of any corporate tenant, for purposes of this Article, shall not include sale of such stock by persons other than those deemed "insiders" within the meaning of the Securities Exchange Act of 1984 as amended, and which sale is effected through "over-the-counter market" or through any recognized stock exchange. *** The conversion of a partnership tenant or subtenant to a liability company or limited liability partnership shall deemed an assignment of this Lease or of such sublease. *The term "Affiliate" as used in this Article shall mean any entity controlled by, controlling or under common control with Tenant. The term "control" shall mean ownership of more than fifty percent (50%) of the equity and voting interest in any entity. **and the reputation and experience of the transferee or of the resulting or surviving corporation, as the case may be (or, if it is a new entity,*** 19 (c) No assignment or subletting shall be made: (i) To any person or entity which shall at that time be a tenant, subtenant or other occupant of any part of ~ of which the demised premises form a part, or who negotiated deals with Landlord or Landlord's agent (directly or through a broker) with respect to space in the building during the six (6) months immediately preceding Tenant's request for Landlord's consent; (ii) By the legal representatives of the Tenant or by any person to whom Tenant's interest under this Lease passes by operation of law, except in compliance with the provisions of this Article; (iii) To any person or entity for the conduct of a business which is not in keeping with the standards and the general character of the Building of which the demised premises form a part 10.08.Anything hereinabove contained to the contrary notwithstanding, the offer-back to Landlord provisions of Section l0.02 and section 10.06 hereof shall not apply to, and Landlord hereby grants will not reasonably withhold or delay its consent to, an assignment of this lease, or sublease of all or part of the demised premises, to: the parent of Tenant or to an Affiliate (as hereinafter defined) a wholly owned subsidiary of Tenant or of said parent of Tenant, provided the net worth of the transferor or sublessor after such transaction, is equal to or greater than its net worth immediately prior to such transaction, and provided also that any such transaction complies with the other provisions of this Article.* 10.09.Anything hereinabove contained to the contrary notwithstanding, the offer-back to Landlord provisions of Section 10.02 hereof shall not apply to, and Landlord will not unreasonably withhold condition, or delay its consent to, an assignment of this Lease, or sublease of all or part of the demised premises, to: any corporation (i) to which substantially all the assets of Tenant are transferred or (ii) into which Tenant may be merged or consolidated, provided that the net worth experience and reputation of such transferee or of the resulting or surviving corporation, as the case may be, is equal to or greater than the net worth experience and reputation of Tenant and of any guarantor of this Lease immediately prior to such transfer** and provided, also, that any such transaction complies with the other provisions of this Article. ****** 10.10.No consent from Landlord shall be necessary under Sections 10.08 and 10.09 hereof where (i) reasonably satisfactory proof is delivered to Landlord that the net worth and other provisions of 10.08 and 10.09, as the case may be, and the other provisions of this Article, have been satisfied and (ii) Tenant (provided it is still in existence), in a writing reasonably satisfactory to Landlord's attorneys, agrees to remain primarily liable jointly and severally with any transferee**** or assignee, for the obligations of Tenant under this Lease.**** ***the reputation and experience of its principals), it is reasonably acceptable to Landlord; ******(except that Section 10.06 shall only apply to the extent that a specific value is ascribed to the Lease in any of the documents relating to the transaction). *****or any other permitted securities brokerage firm ****10.11. If and so long as First Albany Companies Inc., or its Affiliate***** is in actual occupancy of the demised premises, and such party is not in default beyond any grace period under any of the material terms, covenants or conditions of this Lease, then the provisions of Section 10.02 shall not apply to, and Landlord hereby grants its consent to, the licensing by Tenant, from time to time, of up to an aggregate of fifteen percent (15%) of the rentable square foot area of the demised premises, for use by accountants, lawyers or securities industry professionals; but any such licensing shall be subject to all other applicable provisions of this Article. * The provisions of this Section 10.12 shall not apply if Landlord arbitrarily or in bad faith withholds, delays or conditions its consent or approval to any proposed assignment or subletting under this Article. 20 10.11.In no event shall Tenant be entitled to make, nor shall Tenant make, any claim, and Tenant hereby waives any claim, for money damages (nor shall Tenant claim any money damages by way of setoff, counterclaim or defense) based upon any claim or assertion by Tenant that Landlord has unreasonably withheld or unreasonably delayed its consent or approval to a proposed assignment or subletting as provided for in this Article. Tenant's sole remedy shall be an action or proceeding to enforce any such provision, or for specific performance, injunction or declaratory judgment. * ARTICLE 11 ACCESS TO DEMISED PREMISES 11.01.Tenant shall permit Landlord, or its agents or designees, to erect, use and maintain pipes, ducts and conduits in and through the demised premises, provided the same are installed adjacent to or concealed behind walls, floor and ceilings of the demised premises and are installed by such methods and at such locations as will not materially interfere with or impair Tenant's layout or use of the demised premises or damage the appearance thereof** Landlord or its agents or designees shall have the right, but only upon request made to Tenant or any authorized employee of Tenant at the demised premises to enter the demised premises, other than vaults or other enclosures where money, securities or other valuables or confidential documents are kept, at reasonable times during business hours, for the making of such repairs or alterations as Landlord shall be required or shall have the right to make by the provisions of this Lease or any other lease in the Building and, subject to the foregoing, shall also have the right to enter the demised premises for the purpose of inspecting them or exhibiting them to prospective purchasers or lessees of the entire Building or to prospective mortgagees of the fee or of the Landlord's interest in the property of which the demised premises are a part or to prospective assignees of any such mortgages or to the holder of any mortgage on the Landlord's interest in the property, its agents or designees. Landlord shall be allowed to take all material into and upon the demised premises that may be required for the repairs or alterations above mentioned as the same is required for such purpose without the same constituting an eviction of Tenant in whole or in part, and the rent reserved shall in no wise abate, except as otherwise provided in this Lease, while said repairs or alterations are being made, by reason of loss or interruption of the business of **or reduce the rentable area of the demised premises (other than a de minimis extent). ***reasonable request (which shall be at least 24 hours notice, except in an emergency) made * Landlord, at its expense, shall repair any damage to the demised premises including Tenant's finish work, which is caused by any such work or as a result of any such entry of the demised premises by Landlord or its agents or employees. 21 Tenant because of the prosecution of any such work provided that, Landlord shall seek use reasonable diligence to minimize any interference with Tenant's business operations, as in Section 4.04 provided. * 11.02.Landlord or its agents or designees may, during the six (6) nine (9) months prior to the expiration of the term of this Lease, at reasonable times during business hours** enter the demised premises to exhibit same to prospective tenants. 11.03.If Tenant shall not be personally present to open and permit an entry into the demised premises at any time when for any reason an entry therein shall be urgently necessary by reason of fire or other emergency,*** Landlord or Landlord's agents may forcibly enter the same without rendering Landlord or such agents liable therefor (if during such entry Landlord or Landlord's agents shall accord reason able care to Tenant's property) and without in any manner affecting the obligations and covenants of this Lease. ARTICLE 12 CERTIFICATE OR OCCUPANCY 12.01.Tenant will not at any time use or occupy the demised premises in violation of the certificate of occupancy issued for the Building. Landlord represents that the certificate of occupancy for the Building will permit the use of the demised premises for the purposes specified in this Lease. Landlord will make no changes in the Building which would result in a change in the certificate of occupancy which prevents Tenant from using the demised premises for the purposes specified in this Lease. ARTICLE 13 BANKRUPTCY 13.01.Subject to then applicable law and to the provisions of Section 13.03, if at any time prior to the date herein fixed as the commencement of the term of this Lease there shall be filed by or against Tenant in any court pursuant to any statute either of the United States or of any State a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or a trustee of all or a portion of Tenant's property, or if Tenant makes an assignment for the benefit of creditors, or petitions for or enters into an arrangement with creditors, this Lease shall ipso facto be canceled and terminated, in which event neither Tenant nor any person ** , after reasonable prior notice (which may be oral and given on the same day), *** and Landlord has used reasonable efforts to contact an authorized representative of Tenant, whose name and telephone number have theretofore been provided to Landlord in writing, 22 claiming through or under Tenant or by virtue of any statute or of an order of any court shall be entitled to possession of the demised premises and Landlord, in addition to the other rights and remedies given by Section 13.04 hereof and by virtue of any other provision herein or elsewhere in this Lease contained or by virtue of any statute or rule of law, may retain as liquidated damages any rent, security deposit or monies received by it from Tenant or others in behalf of Tenant upon the execution hereof. 13.02.Subject to then applicable law and to the provisions of Section 13.03, if at the date fixed as the commencement of the term of this Lease or if at any time during the term hereby demised there shall be filed by or against Tenant in any court pursuant to any statute either of the United States or of any State a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee of all or a portion of Tenant's property, or if Tenant makes an assignment for the benefit of creditors, or petitions for or enters into an arrangement with creditors, Landlord may at Landlord's option, serve upon Tenant or any such trustee, receiver, or assignee, a notice in writing stating that this Lease and the term hereby granted shall cease and expire on the date specified in said notice, which date shall be not less than ten days after the serving of said notice, and this Lease and the term hereof shall then expire on the date so specified as if that date had originally been fixed in this Lease as the expiration date of the term herein granted.* (Thereupon, neither Tenant nor any person claiming through or under Tenant by virtue of any statute or of an order of any court shall be entitled to possession or to remain in possession of the demised premises but shall forthwith quit and surrender the premises, and Landlord, in addition to the other rights and remedies Landlord has by virtue of any other provision herein or elsewhere in this Lease contained or by virtue of any statute or rule of law, may retain as liquidated damages any rent, security, deposit or monies received by it from Tenant or others in behalf of Tenant. 13.03.In the event that at any times mentioned in either Sections 13.01 or 13.02 there shall be instituted against Tenant an involuntary proceeding for bankruptcy, insolvency, reorganization or any other relief described in Sections 13.01 and 13.02, Tenant shall have 120 ninety (90) days in which to vacate or stay the same before this Lease shall terminate or before Landlord shall have any right to terminate this Lease, provided the rent and additional rent then in arrears, if any, are paid within thirty (30) fifteen (15) days after the institution of * Notwithstanding the foregoing, if and so long as Tenant is not in default under this Lease beyond any grace period, Landlord shall not exercise such termination right. 23 such proceeding, and further provided that the rent and additional rent which shall thereafter become due and payable are paid when due, and Tenant shall not otherwise be in default in the performance of the terms and covenants of this Lease. 13.04.In the event of the termination of this Lease pursuant to Sections 13.01, 13.02 or 13.03 hereof, Landlord shall forthwith, notwithstanding any other provisions of this Lease to the contrary, be entitled to recover from Tenant as and for liquidated damages an amount equal to the difference between the rent reserved hereunder for the unexpired portion of the term demised and the then fair and reasonable rental value of the demised premises for the same period, if lower than the rent reserved at the time of termination. If such premises or any part thereof be re-let by Landlord for the unexpired term of said Lease, or any part thereof, before presentation of proof of such liquidated damages to any court, commission or tribunal, the amount of rent reserved upon such re-letting shall be prima facie the fair and reasonable rental value for the part or the whole of the premises so re- let during the term of the re-letting. Nothing herein contained shall limit or prejudice the, right of Landlord to prove for and obtain as liquidated damages by reason of such termination, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which such damages are to be proved, whether or not such amount be greater, equal to, or less than the amount of the difference referred to above. *30 (15 in case of a payment default) **(or its permitted designee, sublessee, licensee or other successor-in- interest) ***unless Tenant prevails in such action or preceding, 24 ARTICLE 14 DEFAULT 14.01. If Tenant defaults in fulfilling any of the covenants of this Lease, including the payment of rent or additional rent, or if the demised premises become abandoned vacant or deserted, then in any one or more of such events, upon Landlord serving a written* days' notice upon Tenant specifying the nature of said default and upon the expiration of said 30 (15)days, if Tenant shall have failed to comply with or remedy such default, or if the said default or omission complained of shall be of such a nature that the same cannot be completely cured or remedied within said 30-day period and if Tenant shall not have diligently commenced to take action towards curing such default within such day period and shall not thereafter with reasonable diligence and in good faith proceed to remedy or cure such default, or if any execution or attachment shall be issued against Tenant or any of Tenant's property whereupon the demised premises shall be occupied by someone other than Tenant** and such occupancy shall continue for a period of thirty (30) days after written notice from Landlord, then Landlord may serve a written 10 days' notice of cancellation of this Lease upon Tenant, and, upon the expiration of said 10 days, this Lease and the term hereunder and any rights of renewal or extension thereof shall end and expire as fully and completely as if the date of expiration of such 10-day period were the day herein originally fixed for the end and expiration of this Lease and the term hereof and Tenant shall then quit and surrender the demised premises to Landlord but Tenant shall remain liable as hereinafter provided. If Tenant shall at any time default hereunder, and if Landlord shall institute an action or summary proceedings against Tenant based upon such default, then*** Tenant will reimburse Landlord for the expense of reasonable attorney's fees and disbursements thereby incurred by Landlord. 14.02. If the notices provided for in Section 14.01 hereof shall have been given, and the term shall expire as aforesaid, or if Tenant shall make default in the payment of the rent reserved herein or any item of additional rent herein provided or any part of either or in making any other payment herein provided for, then and in any of such events Landlord may, without notice, re-enter the demised premises either by force or otherwise, and dispossess Tenant, the legal representatives of Tenant or other occupant of the demised premises, by summary proceedings or otherwise and remove their effects and 25 hold the premises as if this Lease had not been made, and Tenant hereby waives the service of notice of intention to reenter and to institute legal proceedings to that end. 14.03.Notwithstanding any lease term expiration or termination under this Article 14 prior to the Lease expiration date originally fixed herein, Tenant's obligation to pay any and all rent and additional rent under this Lease shall continue to and cover all periods up to the date originally fixed for the expiration of the term hereof. 14.04.Notwithstanding the provisions of Section 14.01 hereof, Tenant, at its own cost and expense, in its name and/or (wherever necessary) Landlord's name, may contest, in any manner permitted by law (including appeals to a court, or governmental department or authority having jurisdiction in the matter), the validity or the enforcement of any governmental act, regulation or directive with which Tenant is required to comply pursuant to this Lease, and may defer compliance therewith provided that: (a)such non-compliance shall not subject Landlord to criminal prosecution or subject the land and/or Building at One Penn Plaza, New York City to lien or sale; (b) such non-compliance shall not be in violation of any fee mortgage, or of any ground of underlying lease or any mortgage thereon; (c)Tenant shall first deliver to Landlord a surety bond issued by a surety company of recognized responsibility, or other security satisfactory to Landlord, indemnifying and protecting Landlord against any loss or injury by reason of such non-compliance; and (d) Tenant shall promptly and diligently prosecute such contest. Landlord, without expense or liability to it, shall cooperate with Tenant and execute any documents or pleadings required for such purpose, provided that Landlord shall reasonably be satisfied that the facts set forth in any such documents or pleadings are accurate. ARTICLE 15 REMEDIES OF LANDLORD; WAIVER OF REDEMPTION 15.01.In case of such re-entry, expiration and/or dispossess by summary proceedings or otherwise as set forth in Article 14 hereof (a) 26 the rent shall become due thereupon and be paid up to the time of such re-entry, dispossess and/or expiration, together with such reasonable expenses as Landlord may incur for legal expenses, reasonable attorneys' fees, brokerage, and/or putting the demised premises in good order or for preparing the same for re-rental; (b) Landlord may re-let* the premises or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms, which may at Landlord's option be less than or exceed the period which would otherwise have constituted the balance of the term of this Lease and may grant concessions or free rent; and/or (c) Tenant shall also pay Landlord as damages for the failure of Tenant to observe and perform said Tenant's covenants herein contained, any deficiency between the rent hereby reserved and/or covenanted to be paid and the net amount, if any, of the rents collected on account of the lease or leases of the demised premises for each month of the period which would otherwise have constituted the balance of the term of this Lease. The failure or refusal of Landlord to re-let the premises or any part or parts thereof shall not release or affect Tenant's liability for damages. In computing such damages there shall be added to the said deficiency such reasonable expenses as Landlord may incur in connection with re- letting, such as legal expenses, reasonable attorneys fees, brokerage and for keeping the demised premises in good order or for preparing the same for re-letting. Any such damages shall be paid in monthly installments by Tenant on the rent days specified in this Lease and any suit brought to collect the amount of the deficiency for any month shall not prejudice in any way the rights of Landlord to collect the deficiency for any subsequent month by a similar proceeding. Landlord, at Landlord's option, may make such alterations, repairs, replacements and/or decorations in the demised premises as Landlord, in Landlord's sole judgment, considers advisable and necessary for the purpose of re- letting the demised premises; and the making of such alterations and/or decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Landlord shall in no event be liable in any way whatsoever for failure or refusal to re-let the demised premises or any parts thereof, or, in the event that the demised premises are re-let, for failure to collect the rent thereof under such re-letting. In the event of a breach or threatened breach by Tenant of any of the covenants or provisions hereof, Landlord shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for. Mention in this Lease of any particular remedy, shall not preclude Landlord from any other remedy, in law or in equity. * (Landlord shall seek to relet the demised premises provided there is no other comparable space in the Building then available for leasing by Landlord 27 15.02.Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed for any cause, or in the event of Landlord obtaining possession of demised premises, by reason of the violation by Tenant of any of the covenants and conditions of this Lease or otherwise. ARTICLE 16 FEES AND EXPENSES; INTEREST 16.01.If Tenant shall default in the observance or performance of any term or covenant on Tenant's part to be observed or performed under or by virtue of any of the covenants, terms or provisions in any Article of this Lease, (a) Landlord may remedy such default for the account of Tenant, immediately and without notice in case of emergency, or in any other case only provided that Tenant shall fail to remedy such default with all reasonable dispatch after Landlord shall have notified Tenant in writing of such default and the applicable grace period for curing such default shall have expired and (b) if Landlord makes any reasonable expenditures or incurs any reasonable obligations for the payment of money in connection with such default including, but not limited to, reasonable attorneys' fees in instituting, prosecuting or defending any action or proceeding, such sums paid or obligations incurred, with interest, shall be deemed to be additional rent hereunder and shall be paid by Tenant to Landlord upon rendition of a bill to Tenant therefor. If Tenant is more than ten (10) day's late in making any payment due to Landlord from Tenant under this Lease, then interest shall become due and owing to Landlord on such payment from the date when it was due, computed as provided in Section 20.04 hereof. ARTICLE 17 NO REPRESENTATIONS BY LANDLORD 17.01. Landlord or Landlord's agents have made no representations or promises with respect to the said Building or demised premises except as herein expressly set forth. (SEE RIDER ARTICLE 51) 28 ARTICLE 18 END OF TERM 18.01.Upon the expiration or other termination of the term of this Lease, Tenant shall quit and surrender to Landlord the demised premises, broom clean, in good order and condition, ordinary wear and tear and damage by fire, the elements or other casualty excepted, and Tenant shall remove all of its property except as otherwise provided herein provided Tenant's obligation to observe or perform this covenant shall survive the expiration or sooner termination of the term of this Lease. 18.02.Tenant agrees it shall indemnify and save Landlord harmless against all costs, claims, loss or liability resulting from delay by Tenant in so surrendering the premises, including, without limitation, any claims made by any succeeding tenant founded on such delay. Additionally, the parties recognize and agree that other damage to Landlord resulting from any failure by Tenant timely to surrender the premises will be substantial, will exceed the amount of monthly rent theretofore payable hereunder, and will be impossible of accurate measurement. Tenant therefore agrees that if possession of the premises is not surrendered to Landlord within ten (10) days one (1) day after the day of the expiration or sooner termination of the term of this Lease, then Tenant will pay Landlord, as liquidated damages, for each month and for each portion of any month during which Tenant holds over in the premises after expiration or termination of the term of this Lease, a sum equal two three times the average. rent and additional rent which was payable per month under this Lease during the last six months of the term thereof. The aforesaid obligations shall survive the expiration or sooner termination of the term of this Lease. ARTICLE 19 QUIET ENJOYMENT 19.01. Landlord covenants and agrees with Tenant that upon Tenant paying the rent and additional rent and observing and performing all the terms, covenants and conditions, on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the premises hereby demised, subject, nevertheless, to the terms and conditions of this Lease, and to the ground leases, underlying leases and mortgages hereinbefore mentioned. 29 ARTICLE 20 DEFINITIONS 20.01.The term "Landlord" as used in this Lease means only the owner, or the mortgagee in possession, for the time being of the land and Building (or the owner of a lease of the Building or of the land and Building), so that in the event of any transfer of title to said land and Building or said lease, or in the event of a lease of the Building, or of the land and Building, upon notification to Tenant of such transfer or lease the said transferor Landlord shall be and hereby is entirely freed and relieved of all existing or future covenants, obligations and liabilities of Landlord hereunder, and it shall be deemed and construed as a covenant running with the land without further agreement between the parties or their successors in interest, or between the parties and the transferee of title to said land and Building or said lease, or the said lessee of the Building, or of the land and Building, that the transferee or the lessee has assumed and agreed to carry out any and all such covenants, obligations and liabilities of Landlord hereunder. 20.02.The words "re-enter" and "re-entry" as used in this Lease are not restricted to their technical legal meaning. 20.03.The term "business days" as used in this Lease shall exclude Saturdays, Sundays and all days observed by the Federal, State or local government as legal holidays as well as all other days recognized as holidays under applicable union contracts. 20.04.Except as otherwise specifically provided in this Lease, whenever payment of interest is required by the terms hereof, it shall be computed as follows: for an individual or partnership tenant, computed at the maximum legal rate of interest; for a corporate tenant, computed at* two (2%) percent per month unless there is an applicable maximum legal rate of interest which then shall be used. ARTICLE 21 ADJACENT EXCAVATION-SHORING 21.01.If an excavation shall be made upon land adjacent to the demised premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the demised premises for the purpose of doing * the lower of (i) the rate of interest publicly announced New York from time to time by Chase Manhattan Bank, N.A. its prime rate plus four percent (4%) per annum, or (ii) applicable maximum legal rate of interest *Landlord shall seek to cause such work to be effected in a manner which minimizes interference with Tenant's business operations in the demised premises. 30 such work as shall be necessary to preserve the wall of or the Building of which the demised premises form a part from injury or damage and to support the same by proper foundations without any claim for damages or indemnity against Landlord, or diminution or abatement of rent.* ARTICLE 22 RULES AND REGULATIONS 22.01.Tenant and Tenant's servants, employees and agents shall observe faithfully and comply strictly with the Rules and Regulations set forth in Exhibit B attached hereto and made part hereof entitled "Rules and Regulations" and such other and further reasonable Rules and Regulations as Landlord or Landlord's agents may from time to time adopt provided, however, that in case of any conflict or inconsistency between the provisions of this Lease and of any of the Rules and Regulations as originally or as hereafter adopted, the provisions of this Lease shall control. Reasonable written notice of any additional Rules and Regulations shall be given to Tenant. In case Tenant disputes the reasonableness of any additional Rule or Regulation hereafter made or adopted by Landlord or Landlord's agents, the parties hereto agree to submit the question of the reasonableness of such Rule or Regulation for decision to the Chairman of the Board of Directors of the Management Division of the Real Estate Board of New York, Inc., or to such impartial person or persons as he may designate, provided however, if Tenant objects to submitting the question to such Chairman or to his designee or designees, the same shall be submitted to arbitration as set forth in Article 81 hereof, and the determination of the Chairman, his designee or designees, or the arbitrators as the case may be, shall be final and conclusive upon the parties hereto. The right to dispute the reasonableness of any additional Rule or Regulation upon Tenant's part shall be deemed waived unless the same shall be asserted by service of a notice in writing upon Landlord within 60 days after written notice to Tenant of the adoption of any such additional Rule or Regulation. Nothing in this Lease contained~shal1 be construed to impose upon Landlord any duty or obligation to enforce the Rules and Regulations or the terms, covenants or conditions in any other lease, against any other tenant of the Building, and Landlord shall not be liable to Tenant for violation of the same by any other tenant, its servants, employees, agents, visitors or licensees. Landlord shall enforce or not enforce the Rules and Regulations uniformly, and Landlord shall not apply the Rules and Regulations against Tenant in a discriminatory manner. 31 ARTICLE 23 NO WAIVER 23.01.No agreement to accept a surrender of this Lease shall be valid unless in writing signed by Landlord. No employee of Landlord or of Landlord's agents shall have any power to accept the keys of said premises prior to the termination of this Lease. The delivery of keys to any employee of Landlord or of Landlord's agent shall not operate as a termination of this Lease or a surrender of the premises. In the event of Tenant at any time desiring to have Landlord sublet the premises for Tenant's account, Landlord or Landlord's agents are authorized to receive said keys for such purpose without releasing Tenant from any of the obligations under this Lease. The failure of Landlord or Tenant to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this Lease or any of the Rules and Regulations set forth herein, or hereafter adopted by Landlord, shall not prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord or payment by Tenant of rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. The failure of Landlord to enforce any of the Rules and Regulations set forth herein, or hereafter adopted, against Tenant and/or any other tenant in the Building shall not be deemed a waiver of any such Rules and Regulations. No provision of this Lease shall be deemed to have been waived by Landlord or Tenant, as the case may be unless such waiver be in writing signed by Landlord.* No payment by Tenant or receipt by Landlord of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment of rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy in this Lease provided. 23.02.This Lease contains the entire agreement between the parties, and any executory agreement hereafter made shall be ineffective to change, modify, discharge or effect an abandonment of it in whole or in part unless such executory agreement is in writing and signed by the party against whom enforcement of the change, modification, discharge or abandonment is sought. *the other party. ARTICLE 24 WAIVER OF TRIAL BY JURY 24.01.Landlord and Tenant do hereby waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the demised premises, and/or any other claims (except claims for personal injury or property damage), and any emergency statutory or any other statutory remedy. It is further mutually agreed that in the event Landlord commences any summary proceeding for non-payment of rent, Tenant will not interpose and does hereby waive the right to interpose any counterclaim of whatever nature or description in any such proceeding * ARTICLE 25 INABILITY TO PERFORM 25.01.If, by reason of (1) strike, (2) labor troubles, (3) governmental pre-emption in connection with a national emergency, (4) any rule, order or regulation of any governmental agency, (5) conditions of supply or demand which are affected by war or other national, state or municipal emergency, or (6) any cause beyond Landlord's control, Landlord shall be unable to fulfill its obligations under this Lease or shall be unable to supply any service which Landlord is obligated to supply, this Lease and Tenant's obligation to pay rent hereunder shall in no wise be affected, impaired or excused. As Landlord shall learn of the happening of any of the foregoing conditions, Landlord shall promptly notify Tenant of such event and, if ascertainable, its estimated duration, and will proceed promptly and diligently with the fulfillment of its obligations as soon as reasonably possible. If, for any reason whatsoever, unless the result of the causes set forth in numbers (l)-(6) of the first paragraph of this Section 25.01, or because of failure of the public utility supplying electricity or heat to the Building to supply such service: (a) all of the elevators in the banks of elevators which service the floor or floors on which the demised premises are located be inoperative for more than seven (7) ten (10) consecutive business days so that to obtain access to any floor of the demised premises it would be necessary to walk up or down more than four flights of stairs (a flight of stairs shall consist of all stairs in a * , provided Tenant does not thereby waive any defense or the right to assert such claim in a separate action or proceeding *, in addition to any rights Tenant may have under this Lease or in law or at equity, ** Except for rent bills (which may be sent by regular mail) and emergency repair notices (which may be hand delivered to the demised premises), any *** three (3) business days after 33 public stairway of the Building between one floor and the floor above or below), unless elevators in a bank of elevators which service floors above or below the floors upon which the demised premises are located are in operation and if Tenant used same it would not be necessary to walk up or down more than four flights of stairs, or (b) if the heating or air conditioning system which services the demised premises be inoperative for a period of more than seven (7) ten (10) consecutive business days during the days when said system would normally be operating to service the Building, so that Tenant and its employees cannot and do not use, except on an emergency basis, part or all of the demised premises for the purposes for which the premises are leased, Tenant shall* be entitled to an abatement of rent for each day after said seven (7) ten (10) day period for such portion of the demised premises which is inaccessible or which cannot be used as above set forth. ARTICLE 26 NOTICES 26.01.**Any notice or demand, consent, approval or disapproval required to be given by the terms and provisions of this Lease, or by any law or governmental regulation, either by Landlord to Tenant or by Tenant to Lan4lord, shall be in writing. Unless otherwise required by such law or regulation such notice or demand shall be given, and shall be deemed to have been served and given by Landlord and received by Tenant,*** when Landlord shall have deposited such notice or demand by registered or certified mail return receipt requested, enclosed in a securely closed post-paid. wrapper, in a United States Government general or branch post office, or official depository with the exclusive care and custody thereof, addressed to Tenant, at the address set forth after Tenant's name on page 1 of this Lease. After Tenant shall occupy the demised premises, the address of Tenant for notices, demands, consents, approvals or disapprovals shall be One Penn Plaza, New York, N.Y., 10119.**** Such notice, demand, consent, approval or disapproval shall be given, and shall be deemed to have been served and given by Tenant and received by Landlord,*** when Tenant shall have deposited such notice or demand by registered or certified mail return receipt requested, enclosed in a securely requested, closed postpaid wrapper, in a United States Government general or branch post office or, official depository with the exclusive care and custody thereof, addressed to Landlord at 60 East 42nd Street, New York, N.Y., 10165. Either party may, by notice as aforesaid, designate a different address or addresses for notices, demands, consents, approvals or disapprovals. ****, with a copy of any default notice to: First Albany Companies Inc., 30 South Pearl Street, Albany, New York 12207, Attention: General Counsel * Landlord represents that it is presently the policy of the Building that Landlord viii furnish such air-conditioning, ventilation and heating services on all weekdays except for: New Year's Day, Christmas Day, Memorial Day, Fourth of July, Labor Day and Thanksgiving Day; provided, however, that if any such holiday falls on a Saturday or Sunday and the applicable union observes such holiday on a weekday prior to or subsequent to such actual holiday then no such service will be provided on such weekday. 34 ARTICLE 27 27.01.Landlord shall provide necessary passenger elevator facilities on business days from 8:00 A. M. to 6:00 P.M. and shall have sufficient elevators available at all other times. At Landlord's option, the elevators shall be operated by automatic control or by manual control, or by a combination of both of such methods. (SEE RIDER ARTICLE 51) 27.02.Landlord at its expense shall cause the space in the demised premises other than any space used for the preparation or consumption of food or for storage to be kept clean in accordance with the standards set forth in Exhibit C attached hereto and made a part hereof entitled "Cleaning Schedule". 27.03.(a)Landlord at its expense, shall, through the air conditioning system of the Building, furnish to the demised premises on an all year round basis, air conditioning, ventilation and the hours from 8:00 A.M. to 6:00 P.M. on business days.* Provided tenant shall comply with Building Regulations, the air conditioning system will be designed to provide summer interior conditions of 78F when outside conditions are 95F and winter interior conditions of 68F with outside conditions of 10F.*** (b) Landlord at its expense, will maintain*** the air conditioning system in a manner befitting a first class building and will use all reasonable care to keep the same in proper and efficient operating condition. Tenant acknowledges that it has been advised that the conditions hereinbefore described cannot be maintained in the event of the occupancy of the demised premises by more than an average of one person for each 100 square feet of usable area or if Tenant installs and operates lighting, machines and appliances the total connected electrical load of which exceeds 4 1/2 watts per square foot of usable area. (c) Tenant agrees to keep and cause to be kept closed all the windows in and the exterior doors to the demised premises at all times, and Tenant agrees to cooperate fully with Landlord and to abide by all the regulations and requirements which Landlord may reasonably prescribe for the proper functioning and protection of said air conditioning system. (d) The Tenant acknowledges it has been advised that the Building has sealed windows and that, therefore, the air in the **and repair (provided such repair is not necessitated by the act, omission or negligence of Tenant or its agents or employees) ***Landlord will turn on the air-conditioning system sufficiently in advance to enable the system to meet the design specifications set forth above, during the hours set forth above. *, but in no event at a rate greater than the then Building rate charged for such service. The rate for such overtime EVAC service shall be pro-rated between Tenant and any other Tenant who requests and receives such service at the same time as Tenant. **Subject to Sections 27.04(g) and (h) below, if 35 demised premises can become stale and even unbreathable when the ventilating, air-conditioning, and heating system is not operating. Tenant agrees that Landlord shall not be obligated to operate such ventilating, air-conditioning, and heating system after or before regular business hours as set forth in Section 27.03(a) except after prior written notice from and payment by Tenant as hereinafter specified. Tenant agrees that Landlord's failure to operate such system in the absence of such notice and payment shall not be deemed a partial or other eviction, or disturbance of Tenant's use, enjoyment, or possession of the premises, and shall not render Landlord liable for damages, by abatement of rent or otherwise, and Tenant shall not be relieved from any obligation under this Lease. Landlord will provide Tenant with ventilation, air-conditioning; or heating at times other than during regular business hours, at the hourly rate hereinafter set forth, provided that Tenant shall give written notice prior to 1:00 P.M. in the case of such service on business days and prior to 1:00 P. M. on Fridays in the case of such service on Saturdays and Sundays (or 8:00 P.M. on the preceding business day, in the case of holidays). The hourly rate for such ventilating, air-conditioning, or heating service shall-be the Landlord's actual operating cost per hour plus 10% * 27.04.(a) Landlord shall furnish to Tenant the electric energy which Tenant requires in the demised premises on a "rent inclusion" basis. There shall be no charge to Tenant therefor by way of measuring the same on any meter or otherwise, electric current being included as an additional service in the fixed annual rent payable hereunder. Landlord shall not in anywise be liable or responsible to Tenant for any loss or damage or expense which Tenant may sustain or incur if either the quantity or character of electric service is changed or is no longer available or suitable for Tenant's requirements, unless such change is caused by the willful or negligent act or omission of Landlord. (b) **and so long as Landlord provides electricity to the demised premises on a rent inclusion basis, Tenant agrees that the fixed annual rent shall be increased by the amount of the Electricity Rent Inclusion Factor (the "ERIF"), as hereinafter defined, to compensate Landlord as hereinafter provided, for its obtaining and making available to Tenant the redistribution of electric current as an additional service, through the presently installed electrical facilities, for Tenant's reason-able use of ordinary lighting and light office equipment, during ordinary business hours. The "Electricity Rent Inclusion Factor" shall 36 mean the amount determined by applying the estimated connected electrical load of Tenant, which shall be deemed to be the demand (KW), and hours of use thereof, which shall be deemed to be the energy (KWH), as determined by the electrical consultant as hereinafter provided, to the rate charged for such load and energy usage in the SC-4, Rate I Service Classification in effect on March 1, 1996 May 1, 1992 (and not the time-of-day rate schedule, if any), as increased or decreased by all electricity cost changes of Landlord since March 1, 1996 May 1, 1992, as hereinafter provided. The parties acknowledge that the fixed annual rent hereinabove set forth has not yet been, but is to be, increased by the ERIF. Tenant, therefore, agrees to have the fixed annual rent hereinabove set forth so increased by an ERIF of $3.00 per rentable square foot, to be paid in equal monthly installments, in advance, from the date when Landlord commenced to furnish electricity to Tenant on a rent inclusion basis. If the cost to Landlord of electricity shall have been. or shall be, increased or decreased subsequent to March 1, 1996 May 1, 1992 (whether such change occurs prior to or during the term of this Lease), by change in Landlord's electric rates or service classifications, or by any increase or decrease subsequent to the last such electric rate or service classification change, in fuel adjustments or charges of any kind, or by taxes, imposed on Landlord's electricity purchases, or on Landlord's electricity redistribution, or for any other such reason, then the aforesaid ERIF portion of the fixed annual rent shall be changed in the same percentage as any such change in cost due to changes in electric rates or service classifications, and, also, Tenant's payment obligation, for electricity redistribution, shall change from time to time so as to reflect any such increase or decrease in fuel adjustments or charges, and such taxes. Any such percentage change in Landlord's cost due to change in Landlord's electric rates or service classifications, shall be computed on the basis of the average consumption of electricity for the Building for the twelve full months immediately prior to the rate change or other such change in cost, energy and demand, and any changed methods of or rules on billing for same, applied on a consistent basis to the new electric rate or service classification and to the immediately prior existing electric rate or service classification. The parties acknowledge that they understand that it is anticipated that electric rates, charges, etc., may be changed by virtue of time-of-day rates or other methods of billing, and that the foregoing reference to changes in methods of or rules on billing is intended to include any such change. 37 The parties agree that a reputable, independent electrical consultant firm, selected by Landlord ("Landlord's consultant"), may from time to time make surveys in the demised premises covering the electrical equipment and fixtures and use of current therein. If such survey shall disclose a change in Tenant's connected electrical load or hours of energy use, then the connected electrical load and energy usage portion of the ERIF shall be changed in accordance with such survey, and the ERIF redetermined, accordingly, by Landlord's consultant. The fixed annual rent shall be appropriately adjusted effective as of the date of any such change in connected load and/or energy usage, as disclosed by said survey. In no event, whether because of surveys, rate changes or for any other reason, is such originally specified $2.85 per square foot ERIF portion of the fixed annual rent (plus any net increase thereof, but not decrease, by virtue of all electricity rate or service classification changes of Landlord subsequent to May 1, 1992) to be reduced. The determination of changes in the ERIF by Landlord's consultant shall be binding and conclusive on Landlord and on Tenant unless within thirty (30) fifteen (15) days after the delivery of copies of such determination to Landlord and Tenant, either Landlord or Tenant disputes such determination by written notice Landlord to the other. If Tenant either party disputes the determination, it shall, at its own expense, within sixty (60) forty-five (45) days after advising the other Landlord of such dispute, obtain from a reputable independent electrical consultant its own survey of Tenant's electrical lighting and power load and hours of energy use, and a determination of such change in the ERIF in accordance with the provisions of this Article. Tenant's consultant and Landlord's consultant then shall seek to agree on a finding of such determination of such change in the ERIF. If they cannot agree, they shall choose a third reputable electrical consultant whose cost shall be shared equally by Landlord and Tenant, to make a similar survey, and the determination of such ERIF change by such third electrical consultant shall be controlling. (If they cannot agree on such third consultant, within ten (10) days, then either party may apply to the Supreme Court in the County of New York for the appointment of such third consultant.) However, pending such determination, Tenant shall pay to Landlord the amount of ERIF as determined by Landlord's consultant; provided however, if the amount of ERIF determined as aforesaid by such third consultant is different from that determined by Landlord's consultant, then Landlord and Tenant shall make adjustment for any deficiency owed by Tenant or overage paid by Tenant pursuant to the determination of Landlord's consultant, *, provided Landlord does so, also, with respect to all other rent inclusion tenants on the same riser as Tenant, **, except as provided in Section 27.04(j), below. ***and light office equipment as described in Section 27.04(b) below 38 (c) Landlord reserves the right to discontinue furnishing electric energy to Tenant* at any time upon sixty (60) days' written notice to Tenant, and from and after the effective date of such termina tion, Landlord shall no longer be obligated to furnish Tenant with electric energy, provided, however, that such termination date may be extended for a time reasonably necessary for Tenant to make arrange ments to obtain electric service directly from the public utility company servicing the Building. If Landlord exercises such right of termination, this Lease shall remain unaffected thereby and shall continue in full force and effect; and thereafter Tenant shall diligently arrange to obtain electric service directly from the public utility company servicing the Building, and may, at no charge to Tenant, utilize the then existing electric feeders, risers and wiring serving the demised premises to the extent available and safely capable of being used for such purpose and only to the extent of Tenant's then authorized connected load. Landlord shall be obligated to pay no part of any cost required for Tenant's direct electric service**. Commencing with the date when Tenant receives such direct service and as long as Tenant shall continue to receive such service, the fixed annual rental rate payable under this Lease shall be reduced by the amount of the ERIF portion thereof which; was payable hereunder immediately prior to the date when Tenant received such direct service. (d) Tenant agrees that at all times its use of electric current shall not exceed the capacity of existing feeders to the Building or the risers or wiring installation. Tenant agrees not to connect any additional electrical equipment of any type to the Building electric distribution system, other than typewriters, lamps and small office machines*** which consume comparable amounts of electricity, without Landlord's prior written consent, which consent shall not be unreason ably withheld, conditioned or delayed. Any additional risers, feeders, or other equipment proper or necessary to supply Tenant's electrical requirements, upon written request of Tenant, will be installed by Landlord, at the sole cost and expense of Tenant, if, in Landlord's reasonable judgment, the same are necessary and in Landlord's sole judgment will not cause permanent damage or injury. to the Building or the demised premises or cause or create a dangerous or hazardous condition or entail excessive or unreasonable alterations, repairs or expense to Landlord or interfere with or disturb other tenants or occupants. (e) Supplementing Section 86.03 hereof, if all or part of the ERIF payable in accordance with subdivision (b) of this Section 27.04 becomes uncollectible or reduced or refunded by virtue of any law, order or regulation, the parties agree that, at Landlord's option, in lieu of the ERIF, and in consideration of Tenant's use of the building's electrical distribution system and receipt of redistributed electricity and payment by Landlord of consultants' fees and other 39A (g) Notwithstanding anything to the contrary set forth in this Section 27.04, the term "ordinary business hours" shall be deemed to include electricity for use on a 24 hour basis, if that use is consistent for the normal business operation of a brokerage office or is necessary to comply with the cleaning and other services to be performed by the Landlord, including those referred to on Exhibit C. (h) The phrase "Tenants reasonable use of ordinary lighting and light office equipment" referred to in Section 27.04(b) of this Lease shall be deemed to include Tenant's reasonable use of clocks, refrigerators, lamps, typewriters, fax machines, copiers, TVs, videos, fans, phones, microwaves, personal computers, and other machines and equipment which are then normal or customary for use in a securities brokerage office, and of supplemental HVAC units approved by Landlord as in Article 5l provided. (i) Landlord shall, at Landlord's expense, be responsible for all electric service redistributed to the demised premises, and shall repair or replace at its expense any electric meter, panel board and all wires, wiring, feeders, risers, conductors and other electrical equipment serving the demised premises, provided that the same have not been damaged by the act, omission or negligence of Tenant, its agents or employees. (j) Notwithstanding anything to the contrary set forth in Section 27.04(c) of this Lease, Landlord shall not discontinue furnishing redistributed electric energy until Tenant is reasonably able to obtain such electric energy directly from the public utility. Tenant has been advised that the public utility installs its meter(s) for its direct customers. All additional panel boards, feeders, risers, wiring, conductors and other electrical equipment, which may be required to obtain electric energy directly form the public utility, whether or not located within the demised premises, shall be installed and maintained by the Landlord at Landlord's expense where discontinuance is at the election of Landlord (as distinguished from future law or regulations requiring such change). *See Section 27.04(g), (h), (i) and (j) on page 39A following this page. ** (as distinguished from a normal office pantry) ***Tenant shall employ an exterminator reasonably acceptable to Landlord on a regular basis, 39 redistribution costs, the fixed annual rental rate(s) to be paid under this Lease shall be increased by an "alternative charge" which shall be a sum equal to $3.00 per year per rentable sq. ft. of the demised premises, changed in the same percentage as any increases or decreases in the cost to Landlord for electricity for the entire building subsequent to May 1, 1992, March 1, 1996, because of rate changes, such percentage change to be computed as in subdivision (b) of this Section 27.04 provided. (f) Anything hereinabove to the contrary notwithstanding, in no event is the ERIF or any "alternate charge" to be less than an amount equal to the total of Landlord's payment to the public utility for the electricity consumed by Tenant (and any taxes thereon or on redistribution of same) plus 5% thereof for transmission line loss, plus 15% thereof for other redistribution costs. 27.05.* Subject to the provisions of Section 25.01, Landlord reserves the right to stop services on the air conditioning, elevator, plumbing and electric systems when necessary by reason of accident or emergency or for repairs, alterations, replacements or improvements, provided that except in case of emergency, Landlord will notify Tenant in advance, if possible, of any such stoppage and, if ascertainable, its estimated duration, and will proceed diligently with the work necessary to resume such service as promptly as possible and in a manner so as to minimize interference with the Tenant's use and enjoyment of the demised premises. 27.06.Landlord, at its expense will supply tenant with an adequate quantity of hot and cold water for lavatory, cleaning, pantry and drinking purposes. If Tenant requires water for any additional purpose, Tenant shall pay the cost thereof at the cost to Landlord as the same is measured by a meter to be installed and maintained at Tenant's expense. 27.07.In the event Tenant shall employ any contractor to do in the demised premises any work permitted by Section 3.01 of this Lease, such contractor and any subcontractor shall agree to employ only such labor as will not result in jurisdictional disputes or strikes. Tenant will inform Landlord in writing of the names of any contractor or subcontractor Tenant proposes to use in the demised premises at least five (5) days prior to the beginning of work by such contractor or subcontractor. 27.08.If Tenant is permitted hereunder to and does have a separate kitchen or cafeteria area for the preparation or consumption of food** in the demised premises, Tenant shall pay to Landlord the cost of removal from the Building of any refuse or rubbish from such area and*** the cost of employing on a regular basis, an exterminator to keep the demised premises free from vermin; and Tenant shall provide a refrigerated garbage storage room, the plans and specifications thereof to be *, except if delivered by U.P.S., Federal Express or the U.S. Postal Service. **, or may have light meals delivered to the Building from restaurants or delis outside the building (or front restaurants or delis in the commercial portion of the building), 40 approved by Landlord, or other means of disposing of garbage reasonably satisfactory to Landlord. 27.09.It is expressly agreed that only Landlord or any one or more persons, firms or corporations authorized in writing by Landlord will be permitted to furnish: laundry, linen, towels, drinking water, ice and other similar supplies and services to tenants and licensees in the Building. Landlord may fix, in its own absolute reasonable discretion, at any time and from time to time, the hours during which and regulations under which such supplies and services are to be furnished. Landlord expressly reserves the right to act as or to designate, at any time and from time to time, an exclusive supplier of all or any one or more of the said supplies and services, provided that the quality thereof and the charges therefor are reasonably comparable to that of other suppliers; and Landlord furthermore expressly reserves the right to exclude from the Building any person, firm or corporation attempting to furnish any of said supplies or services but not so designated by Landlord. 27.10.It is expressly agreed that only Landlord or any one or more persons, firms or corporations authorized in writing by Landlord will be permitted to sell, deliver or furnish any food or beverages whatsoever for consumption within the demised premises or elsewhere in the Building. Landlord expressly reserves the right to act as or to designate at any time, or from time to time, an exclusive supplier or suppliers of such food and beverages; and Landlord further expressly reserves the right to exclude from the Building any person, firm or corporation attempting to deliver or purvey any such food or beverages but not so designated by Landlord.* It is understood, however, that Tenant or regular office employees of Tenant who are not employed by any supplier of such food or beverages or by any person, firm or corporation engaged in the business of purveying such food or beverages may personally bring food or beverages into the Building** for consump tion within the demised premises by the said Tenant or employees of Tenant, but not for resale to or for consumption by any other tenant, or the employees or guests of any other tenant. Landlord may fix in its absolute reasonable discretion, at any time and from time to time, the hours during which, and the regulations under which food and beverages may be brought into the Building by Tenant or its regular employees. 27.11.Tenant acknowledges that it has been advised that the cleaning contractor for the Building may be a division or affiliate of ** Landlord represents that it is currently the policy of the Building not to charge tenants for the removal from the demised premises of broken down cardboard boxes or recyclables. ***provided that the quality of service rendered is equivalent, 41 Landlord. Tenant agrees to employ such contractor or such other office maintenance contractor as Landlord may from time to time designate, for all waxing, polishing, lamp replacement, cleaning and maintenance work of or in the demised premises, and Tenant's furniture, fixtures and equipment, provided that the quality thereof and the charges therefor are reasonably comparable to that of other contractors or individuals. Tenant shall not employ any other such contractor or individual without Landlord's prior written consent, but nothing herein contained shall prohibit Tenant from performing such work for itself by use of its own regular employees. 27.12.Landlord will not be required to furnish any other services, except as provided in this Article 27, and except that Landlord agrees to provide on business days (not including Saturdays, Sundays and holidays) the cleaning set forth in Exhibit C hereof. Tenant shall pay to Landlord, on demand, a reasonable charge* for the removal from the demised premises of any refuse and rubbish of Tenant as shall not be contained in the waste receptacles described in Exhibit C.** Landlord, its cleaning contractor and their employees shall have after-hours access to the demised premises and the use of tenant's light, power and water in the demised premises as may be reasonably required for the purpose of cleaning the demised premises. 27.18.If Tenant contests the reasonableness of any charges made by any supplier or contractor designated by Landlord as set forth in any section of this Article 27, Landlord and Tenant shall each obtain two bona fide bids for such work from independent reputable contractors, and not controlled directly or indirectly by Landlord or affiliated with Landlord or Landlord's Managing Agent, or by or with Tenant, and the average of the four bids thus obtained shall be the standard of comparison in determining the reasonableness of such charges. If the supplier or contractor designated by Landlord is unwilling to accept the average of such bids as full payment for its suppliers or services, Landlord may substitute another supplier or contractor who will accept such average as full payment,*** or if Landlord fails to make such substitution within fifteen (15) days after the ascertainment of the average of the bids, Tenant shall be free to make its own arrangements for such work or supplies for the remainder of the term. 27.14.Landlord shall manage and maintain the Building as a first class office building. Tenant and its employees shall occupy and use the demised premises in a manner befitting such building. * (not to exceed the then Building's rate charged for such service) 42 ARTICLE 29 ESCALATION - COST OF LIVING ADJUSTMENTS 28.01 The fixed annual rent reserved in this Lease and payable by Tenant hereunder shall be adjusted, as of the times and in the manner set forth in this Article: (a) Definitions: For the purposes of this Article 28 the following definitions shall apply: (i) The term "Base Year" shall mean the full calendar year during which the term of this Lease commences. (ii) The term "Price Index" shall mean the "Consumer Price Index" published by the Bureau of Labor Statistics of the U.S. Department of Labor, All Items, New York, N.Y. - North-eastern, N.J., for urban wage earners and clerical workers, or a successor or substitute index appropriately adjusted. (iii) The term "Price Index or the Base Year" shall mean the average of the monthly All Items Price Indexes for each of the 12 months of the Base Year. (b) Effective as of each January and July subsequent to the Base Year there shall be made a cost of living adjustment of the annual rental rate payable hereunder. The July adjustment shall be based on the percentage difference between the Price Index for the preceding month of June and the Price Index for the Base Year. The January adjustment shall be based on such percentage difference between the Price Index of the preceding month of December and the Price Index for the Base Year. (i) In the event the Price Index for June in any calendar year during the term of this Lease reflects an increase over the Price Index or the Base Year, then the fixed annual rent originally herein provided to be paid as of the July 1st following such month of June (unchanged by any adjustments under this Article) all be multiplied by the percentage difference between the Price Index for June and the Price Index for the Base Year, and the resulting sum shall be added to such fixed annual rent, effective as of such July 1st. Said adjusted annual rent shall thereafter be payable hereunder, in equal monthly installments, until it is readjusted pursuant to the terms of this Lease. 43 (ii) In the event the Price Index for December in any calendar year during the term of this Lease reflects an increase over the Price Index for the Base Year, then the fixed annual rent originally herein provided to be paid as of the January 1st following such month of December (unchanged by an adjust ments under this Article) shall be multiplied by the percentage difference between the Price Index for December and the Price Index for the Base Year, and the resulting sum shall be added to such fixed annual rent effective as of January 1st. Said adjusted annual rent shall thereafter be payable hereunder, in equal monthly installments, until it is readjusted pursuant to the terms of this Lease. The following illustrates the intention of the parties hereto as to the computation of the aforementioned cost of living adjustment in the annual rent payable hereunder: Assuming that said fixed annual rent (is $10,000, that the Price Index for the Base Year was 102.0 d that the Price Index for the month of June, in a calendar year following the Base Year was 105.0, then the percentage in increase thus reflected, i.e., 2.941% (3.0/102.0) would be multiplied by $10,000, and said fixed annual rent would be increased by $294.10 effective as of July 1st of said calendar year. In the event that the Price Index ceases to use 1982-1984=100 as the basis of calculation, or a substantial change is made in the terms or number of items contained in the Price Index, then the Price Index shall be adjusted to the figure that would have been arrived at had the manner of computing the Price Index in effect at the date of this Lease not been altered. In the event such Price Index (or a successor or substitute index) is not available, a reliable governmental or other non-partisan publication evaluating the information theretofore used in determining the Price Index shall be used. No adjustments or recomputations, retroactive or otherwise shall be made due to any revision which may later be made in the first published figure of the Price Index for any month. (c) The statements of the cost of living adjustment to be furnished by Landlord as provided in subdivision (b) above shall consist of data prepared for the Landlord by a firm of Certified Public Accountants (who may be the firm now or then currently employed by Landlord for the audit of its accounts). The statements thus furnished 44 to Tenant shall constitute a final determination as between Landlord and Tenant of the cost of living adjustment for the periods represented thereby. (d) In no event shall the fixed annual rent originally provided to be paid under this Lease (exclusive of the adjustments under this Article) be reduced by virtue of this Article. (e) Any delay or failure of Landlord , beyond July or January of any year, in computing or billing for the rent adjustments hereinabove provided, shall not constitute a waiver of or in any way impair the continuing obligation of Tenant to pay such rent adjustments hereunder. (f) Notwithstanding any expiration or termination of this Lease prior to the lease expiration date originally provided herein (except in the case of a cancellation by mutual agreement) Tenant's obligation to pay rent as adjusted under this Article shall continue and shall cover all periods up to said lease expiration date, and shall survive any earlier expiration or termination of this Lease. ARTICLE 29 BUILDING ENERGY ESCALATION 29.01 For purposes of this Article, the term "Building Energy Costs" shall mean the costs and expenses incurred or borne by Landlord for steam, oil, electricity or any other fuel or energy source purchased or used for the Building (other than electricity which is redistributed to tenants on a rent inclusion or a submetering basis); the parties acknowledge and agree that forty (40%) percent of the Building's payment to the public utility for the purchase of electricity shall be deemed to be payment for electricity purchased or used for the Building. The term "the proportionate share" shall mean a percentage computed on the basis of a fraction, the numerator of which is the rentable square foot area of the demised premises and the denominator of which is the total rentable square foot area of the office and commercial space in the Building (excluding garage space). The parties acknowledge and agree that the total rentable square foot area of the presently demised premises shall be deemed to be sq. ft., and that the rentable square foot area of the office and commercial space in the Building shall be deemed to be 2,072,136 sq. ft. The term "Base Year" shall mean the full calendar year prior to the year during which the term of this Lease commences. The term 45 "comparative year" shall mean the calendar year in which the term of this Lease commences and each subsequent calendar year. If the Building Energy Costs for any comparative year shall be greater than those for the Base Year, Tenant shall pay to Landlord, as additional rent, a sum equal to Tenant's proportionate share of the excess of the Building Energy Costs for such comparative year over those for the Base Year (such amount being hereinafter called the "Energy Payment"). 1. Following the expiration of each comparative year and after receipt thereof from Landlord's certified public accountants, Landlord shall submit to Tenant a statement, certified by Landlord, setting forth the Building Energy Costs for the preceding comparative year and the Energy Payment, if any, due to Landlord from Tenant for such comparative year. The rendition of such statement to Tenant shall constitute prima facie proof of the accuracy thereof and, if such statement shows an Energy Payment due from Tenant to Landlord with respect to the preceding comparative year then (a) Tenant shall make payment of any unpaid portion thereof within ten (10) days after receipt of such statement; and (b) Tenant shall also pay to Landlord, as additional rent, within ten (10) days after receipt of such statement, an amount equal to the product obtained by multiplying the total Energy Payment for the preceding comparative year by a fraction, the denominator of which shall be 12 and the numerator of which shall be the number of months of the current comparative year which shall have elapsed prior to the first day of the month immediately following the rendition of such statement; and (c) Tenant shall also pay to Landlord, as additional rent, commencing as of the first day of the month immediately following the rendition of such statement and on the first day of each month thereafter until a new statement is rendered, 1/12th of the total Energy Payment for the preceding comparative year. The aforesaid monthly payments based on the total Energy Payment for the preceding comparative year shall be adjusted to reflect, if Landlord can reasonably so estimate, known increases in rates, for the current comparative year, applicable to the categories involved in computing Building Energy Costs, whenever such increases become known prior to or during such current comparative year. The payments required to be made under (b) and (c) above shall be credited toward the Energy Payment due from Tenant for the then current comparative year, subject to adjustment as and when the statement for such current comparative year is rendered by Landlord 46 Tenant shall make Energy Payments on account of such payments due for the first comparative year on the basis of reasonable estimates prepared by Landlord, payments to be made monthly on the first day of each month during such first comparative year. The payments based on such estimates shall then be adjusted by the parties following the expiration of said first comparative year, on the basis of landlord's actual costs for that year. Landlord's certified public accountant may rely on landlord's allocations and estimates wherever allocations or estimates are needed for Building Energy Costs. The statements of the Building Energy Costs thus furnished by Landlord to Tenant shall constitute a final determination as between Landlord and Tenant of the Building Energy Costs for the periods represented thereby, unless Tenant within sixty (60) days after they are furnished shall give a notice to Landlord that it disputes their accuracy or their appropriateness, which notice shall specify the particular respects in which the statement is inaccurate. Pending the resolution of such dispute, Tenant shall pay the additional rent to Landlord in accordance with the statements furnished by Landlord. After payment of said additional rent, Tenant shall have the right, during reasonable business hours and upon not less than five (5) business days' prior written notice to Landlord, to examine Landlord's books and records with respect to the foregoing, provided such examination is commenced within (30) days and concluded within sixty (60) days following the rendition of the statement in question. Any dispute as to said statement shall be resolved by arbitration in accordance with the provisions of Article 31 hereof, which arbitra tion shall be by three (3) arbitrators each of whom shall have at least ten (10) years' experience in the supervision of the operation and management of major office buildings in Manhattan. 2. In no event shall the fixed annual rent under this Lease be reduced by virtue of this Article. 3. If the commencement date of the term of this Lease is not the first day of the first comparative year, then the additional rent due hereunder for such first comparative year shall be a proportionate share of said additional rent for the entire comparative year, said proportionate share to be based upon the length of time that the Lease term shall have been in existence during such first comparative year. Upon the date of any expiration or termination of this Lease (except termination because of Tenant's default) whether the same be the date 47 hereinabove set forth for the expiration of the term or nay prior or subsequent date, a proportionate share of said additional rent for the comparative year during which such expiration or termination occurs shall immediately become due and payable by Tenant to Landlord, if it was not theretofore already billed and paid. The said proportionate share shall be based upon the length of time that this Lease shall have been in existence during such comparative year. Landlord shall as soon as practicable cause statements of the Building Energy Costs for that comparative year to be prepared and furnished to Tenant. Landlord and Tenant shall thereupon make appropriate adjustments of amounts then owing. 4. Landlord's and Tenant's obligation to make the adjustments referred to in subdivision (3) above shall survive any expiration or termination of this Lease 5. A delay or failure of landlord in billing any Energy Payment hereinabove provided shall not constitute a waiver of or in any way impair the continuing obligation of Tenant to pay such Energy Payments hereunder. ARTICLE 30 CONDITION OF PREMISES 30.01.* Tenant expressly acknowledges that it has inspected the demised premises and is fully familiar with the physical condition thereof. Tenant agrees to accept the demised premises in its as is condition and Tenant acknowledges that Landlord shall have no obligation to do any work in and to the demised premises in order to make them suitable and ready for occupancy and use by Tenant **except for any work which may be hereinafter specified in this Article as work which Landlord will substantially complete in the demised premises prior to the commencement date of the term of this Lease. If any such work is not so completed by Landlord prior to the commencement date of the term of this Lease then Tenant's obligation to pay fixed annual rent shall not commence until the substantial completion of any such work [Any such Landlord's work is to be set forth at this point, or in a schedule annexed to this Lease] * Except as provided in Article 51 of this Lease, ** , except as provided in Article 46 hereof. 48 ARTICLE 31 ARBITRATION 31.01.In each case specified in this Lease in which resort to arbitration shall be required, such arbitration (unless otherwise speci fically provided in other Sections of this Lease) shall be in New York City in accordance with the Commercial Arbitration Rules of the American Arbitration Association and the provisions of this Lease, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. ARTICLE 32 INDEMNITY 32.01 Tenant shall indemnify and save Landlord harmless from and against any liability or expense arising from the use or occupation of the demised premises by Tenant or anyone on the premises with Tenant's permission, or from any breach of this Lease. ARTICLE 33 VAULT AND BASEMENT SPACE 33.01.Landlord shall have the right from time to time, to substitute for the basement space, if any, then occupied by Tenant, comparable space in the basement, provided Landlord shall give at least thirty (30) days' prior written notice to Tenant of its intention so to do. No vault or basement space not within the property line of the Building is leased hereunder, anything to the contrary indicated elsewhere in this Lease notwithstanding. Any vault or basement space not within the property line of the Building, which Tenant may be permitted to use or occupy, shall be used or occupied under revocable license and if the amount of such space be diminished or required by any governmental authority having jurisdiction, Landlord shall not be subject to any liability nor shall Tenant be entitled to abatement of rent, nor shall such diminution or abatement be deemed a constructive or actual eviction. Any fee or license charge or tax of municipal authorities for such vault or basement space shall be paid by Tenant to Landlord as additional rent within thirty (30) five (5) days after written demand therefor. If such fee, tax or charge shall be for vault or basement space greater in area than that occupied by Tenant, the charge to Tenant shall be pro-rated. 49 ARTICLE 34 OCCUPANCY AND USE BY TENANT 34.01 (a) Tenant acknowledges that its continued occupancy of the demised premises, and the regular conduct of its business therein, are of utmost importance to the Landlord in the renewal of other leases in the building, in the renting of vacant space in the building, in the providing of electricity, air conditioning, steam and other services to the tenants in the building, and in the maintenance of the character and quality of the tenants in the building. Tenant therefore covenants and agrees that it will occupy the entire demised premises, and will conduct its business therein in the regular and usual manner, throughout the term of this Lease. Tenant acknowledges that Landlord is executing this Lease in reliance upon these covenants and that these covenants are a material element of consideration inducing the Landlord to execute this Lease. Tenant further agrees that if it vacates the demised premises or fails to so conduct business therein, at any time during the term of this Lease, without the prior written consent of the Landlord, then all rent and additional rent reserved in this Lease from the date of such breach to the expiration date of this Lease shall become immediately due and payable to Landlord. (b) The parties recognize and agree that the damage to Landlord resulting from any breach of the covenants in subdivision (a) hereof will be extremely substantial, will be far greater than the rent payable for the balance of the term of this Lease, and will be impossible of accurate measurement. The parties, therefore, agree that in the event of a breach or threatened breach of the said covenants, in addition to all of Landlord's other rights and remedies, at law or in equity or otherwise, Landlord shall have the right of injunction to preserve Tenant's occupancy and use. The words "become vacant or deserted" as used elsewhere in this Lease shall include Tenant's failure to occupy or use as by this Article required. (c) If Tenant breaches either of the covenants in subdivision (a) above, and this Lease be terminated because of such default, then, in addition to Landlord's rights of re-entry, restoration, preparation for and rerental, and anything elsewhere in this Lease to the contrary notwithstanding, Landlord shall retain its right to judgment on and collection of Tenant's aforesaid obligation to make a single payment to Landlord of a sum equal to the total of all rent and additional rent reserved for the remainder of the original term of 50 this Lease, subject to future credit or repayment to Tenant in the event of any rerenting of the premises by Landlord, after first deducting from rerental income all expenses incurred by Landlord in reducing to judgment or otherwise collecting Tenant's aforesaid obligation, and in obtaining possession of restoring, preparing for and re-letting the premises. In no event shall tenant be entitled to a credit or repayment for rerental income which exceeds the sums payable by Tenant hereunder or which covers a period after the original term of this Lease. ARTICLE 35 NAME OF BUILDING 35.01.Landlord shall have the full right at any time to name and change the name of the Building and to change the designated address of the Building. The Building may be named after any person, firm, or otherwise, whether or not such name is, or resembles, the name of a tenant of the Building. ARTICLE 36 INVALIDITY OF ANY PROVISION, ETC. 36.01.If any term, covenant, condition or provision of this Lease or the application thereof to any circumstance or to any person, firm or corporation shall be invalid or unenforceable to any extent, the remaining terms, covenants, conditions and provisions of this Lease or the application thereof to any circumstances or to any person, firm or corporation other than those as to which any term, covenant, condition or provision is held invalid or unenforceable, shall not be affected thereby and each remaining term, covenant, condition and provision of this Lease shall be valid and shall be enforceable to the fullest extent permitted by law. 36.02.If any term, covenant, condition or provision of this Lease is found invalid or unenforceable to any extent, by a final judgment or award which shall not be subject to change by any appeal, then either party to this Lease may initiate an arbitration in accordance with the provisions of Article 31, which arbitration shall be by three (3) arbitrators each of whom shall have at least ten (10) years' experience in the supervision of the operation and management of major office buildings in Manhattan. Said arbitrators shall devise a valid and enforceable substitute term, covenant, condition or provision 51 for this Lease which shall as nearly as possible carry out the intention of the parties with respect to the terms, covenant, condition or provisions theretofore found invalid or unenforceable. Such substitute term, covenant, condition or provision, as determined by the arbitrators, shall thereupon be deemed a part of this Lease. 36.08.In the event the fixed annual rent or additional rent or any part thereof provided to be paid by Tenant under the provisions of this Lease during the demised term shall become uncollectible or shall be reduced or required to be reduced or refunded by virtue of any Federal, State, County or City law, order or regulation, or by any direction of a public officer or body pursuant to law, or the orders, rules, code or regulations of any organization or entity formed pursuant to law, whether such organization or entity be public or private, then Landlord, at its option, may at any time thereafter terminate this Lease, by not less than thirty (30) days' written notice to Tenant, on a date set forth in said notice, in which event this Lease and the term hereof shall terminate and come to an end on the date fixed in said notice as if the said date were the date originally fixed herein for the termination of the demised term. Landlord shall not have the right so to terminate this Lease if Tenant within such period of thirty (30) days shall in writing lawfully agree that the rentals herein reserved are a reasonable rental and agree to continue to pay said rentals, and if such agreement by Tenant shall then be legally enforceable by Landlord. ARTICLE 37 CAPTIONS 37.01.The captions are inserted only as a matter of convenience and for reference, and in no way define, limit or describe the scope of this Lease nor the intent of any provision thereof. ARTICLE 38 CERTIFICATE OF TENANT 38.01.Tenant shall, without charge, at any time and from time to time, within twenty (20) ten (10) days after request by Landlord, deliver a written instrument to Landlord or any other person, firm or corporation specified by Landlord, duly executed and acknowledged, certifying: (a)That this Lease is unmodified and in full force and effect or, if there has been any modification, that the same is in full force and effect as modified and stating any such modification; 52 (b) Whether or not there are then existing any setoffs or defenses against the enforcement of any of the agreements, terms, covenants, or conditions of this Lease and any modification thereof upon the part of Tenant to be performed or complied with, and, if so, specifying the same; (c) The dates to which the basic rent, and additional rent, and other charges hereunder, have been paid; and (d) Whether the term of this Lease has commenced and rent become payable thereunder; and whether Tenant has accepted possession of the demised premises; and whether Landlord has substantially completed its required work under Article 30 hereof. 38.02.Tenant agrees that, except for the first month's rent hereunder, it will pay no rent under this Lease more than thirty (30) days in advance of its due date, and, in the event of any act or omission by Landlord, Tenant will not exercise any right to terminate this Lease or to remedy the default and deduct the cost thereof from rent due hereunder until Tenant shall have given written notice of such act or omission to the Ground Lessor and to the holder of any first mortgage on the Ground Lease who shall have furnished such holder's last address to Tenant, and until a reasonable time for remedying such act or omission shall have elapsed following the giving of such notices, during which time such Lessor or holder shall have the right, but shall not be obligated, to remedy or cause to be remedied such act or omission. 38.03 Anything in this Lease contained to the contrary notwithstanding, under no circumstances shall the holder of any first mortgage on the Ground Lease or, if the interests of Landlord under this Lease are transferred by reason of, or assigned in lieu of, foreclosure or other proceedings for enforcement of such mortgage, or if the holder of such mortgage acquires a lease in substitution therefor, then such purchaser, assignee, or lessee, as the case may be, whether or not it shall have succeeded to the interests of the landlord under this Lease, be subject to or liable for any offsets or deductions from rent, claims or defenses which the Tenant might have against any prior landlord under this Lease. ***The security deposit shall be deposited in an interest bearing account with a banking institution in New York City selected by Landlord, and any interest earned thereon (less the maximum administrative fee allowed by law to which Landlord shall be entitled under the law) shall be added onto and become part of the security deposit. 53 ARTICLE 39 SECURITY DEPOSIT 39.01.Tenant has deposited with landlord the sum of $180,128 as security for the faithful performance and observance by Tenant of the terms, provisions and conditions of this Lease; it is. agreed that in the event Tenant defaults in respect of any of the terms, provisions and conditions of this Lease, *including, but not limited to, the payment or rent and additional rent, landlord may (but shall not be required to) use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any rent and additional rent or any other sum as to which Tenant is so in default or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default in respect of any of the terms covenants and conditions of this Lease, including but not limited to, any damages or deficiency in the reletting of the premises, whether such damages or deficiency accrued before or after summary proceedings or other re- entry by Landlord. Tenant shall, upon demand, deposit with Landlord the full amount of security deposit so used or applied by Landlord, in order that Landlord shall have the full security deposit on hand at all times during the term of this Lease. In the event that Tenant shall fully and faithfully comply with all of the material terms, provisions, covenants and conditions of this Lease, the security shall be returned to Tenant after the date fixed as the end of the Lease and after delivery of entire possession of the demised premises to Landlord.** In the event of a sale of the land and building or leasing of the building, of which the demised premises form a part, landlord shall have the right to transfer the security to the vendee or lessee and Landlord shall thereupon be released by Tenant from all liability for the return of such security: and Tenant agrees to look to the new Landlord solely for the return of said security; and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the security to a new landlord. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as security and that neither Landlord nor its succes sors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance.*** * beyond any applicable notice and/or grace period ** , except that Landlord may retain any portion of such security which Landlord reasonably believes is required to cure any then existing default with respect to any non-material term, provision, covenant or condition of this Lease. 54 ARTICLE 40 BROKER 40.01.Tenant represents and warrants that it neither consulted nor negotiated with any broker or finder with regard to the demised premises other than Helmsley-Spear, Inc. and The Galbreath Company. L.P. Tenant agrees to indemnify, defend and save Landlord harmless from and against any claims for fees or commissions from anyone other than Helmsley-Spear, Inc. and The Galbreath Company. L.P. with whom Tenant has dealt in connection with the demised premises or this Lease. Landlord agrees to pay any commission or fee owing to the aforesaid Helmsley-Spear, Inc. and The Galbreath Company. L.P. ARTICLE 41 POSSESSION 41.01.Supplementing Articles 25 and 80 hereof, if Landlord shall be unable to give possession of the premises on the commencement date of the term of this Lease, because of the holding-over or retention of possession of any tenant or occupant, or for any other reason, Landlord shall not be subject to any liability for such failure. In such event, this Lease shall stay in full force and effect, without extension of its term. However, the rent hereunder shall not commence until the premises are made available for occupancy by Tenant (with the substantial completion in the premises of any work required by this Lease to be completed therein by Landlord at Landlord's expense prior to the commencement date of the term of this Lease). If Landlord is unable to give possession of the premises on the commencement date of the term, because changes, repairs or decorations being made for Tenant's use at Tenant's expense have not been completed, there shall be no abatement of rent and the rent shall commence on the date specified herein. If permission is given to Tenant to occupy the premises, or other premises, prior to the commencement date of the term, such occupancy shall be deemed to be pursuant to the terms of this Lease, except that the parties shall separately agree as to the obligation of Tenant to pay rent for such occupancy. The provisions of this Article are intended to constitute an "express provision to the contrary" within the meaning of Section 223-a of the New York Real Property Law. 55 ARTICLE 42 SUBMISSION OF LEASE 42.01.It is understood and agreed that this Lease is submitted to Tenant on the understanding that it shall not be considered an offer and shall not bind Landlord in any way until (i) Tenant has duly executed and delivered duplicate originals to Landlord and (ii) landlord has executed and delivered one of said originals to Tenant. ARTICLE 43 MEMORANDUM OF LEASE 43.01.This lease shall not be recorded without the prior written consent of Landlord. At the request of either party, Landlord and Tenant shall promptly execute, acknowledge and deliver a memorandum with respect to this Lease sufficient for recording. Such memorandum shall not in any circumstances be deemed to change or otherwise affect any of the obligations or provisions of this Lease. ARTICLE 44 SUCCESSORS AND ASSIGNS 44.01.The covenants, conditions and agreements contained in this Lease shall bind and inure to the benefit of Landlord and Tenant and their respective heirs, distributees, executors, administrators, successors, and, except as otherwise provided in this Lease, their assigns. IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this Lease as of the day and year first above written. SEE RIDERS ANNEXED HERETO AND MADE A PART HEREOF MID-CIT ASSOCIATES By: HELMSLEY-SPEAR, INC., Agent Witness: (as to Landlord) (Landlord) /s/ Jerome P. Cirillo By: /s/ Daniel E. Nertha - --------------------- ------------------------- Daniel E. Nertha Vice-President FIRST ALBANY COMPANIES INC. (Tenant) By: /s/ Edwin T. Brondo Name: Edwin T. Brondo Title: Vice President Tenant's Federal I.D. Number 56 STATE OF NEW YORK} COUNTY OF NEW YORK } ss: (Landlord) On the day of , 19,before me personally came ,residing at ,to me known and known to me to be a member of MID-CITY ASSOCIATES, a general Co- partnership and the person described in and who executed the foregoing instrument in the name of MID-CITY ASSOCIATES and he duly acknowledged to me that he executed the same as and for the act and deed of MID- CITY ASSOCIATES. (Notary Public) STATE OF NEW YORK} COUNTY OF NEW YORK } ss: (Landlord) On the day of,19 , before me personally came , to me known, who being by me duly sworn, did depose and say that he resides at , that he is the of HELMSLEY-SPEAR, INC., a New York corporation, the corporation mentioned in, and foregoing instrument; and that he signed h name thereto by order of the Board of Directors of said corporation. (Notary Public) STATE OF NEW YORK} COUNTY OF NEW YORK } ss: (Corporate Tenant) On the day of , 19,before me personally came ,to me known, who being by me duly sworn, did depose and say that he resides at , that he is the of a corporation, the corporation mentioned in, and which executed the foregoing instrument; and that he signed his name thereto by order of the Board of Directors of said corporation. (Notary Public) STATE OF NEW YORK} COUNTY OF NEW YORK } ss: (Partnership Tenant) On the day of , 19,before me personally came ,residing at , to me known and known to me to be a member of a co-partnership and the person described in and who executed the foregoing instrument in the name of and he duly acknowledged to me that he executed the same as and for the act and deed of (Notary Public) 58 STATE OF NEW YORK} COUNTY OF NEW YORK } ss: (Individual Tenant) On the day of , 19, before me personally came , to me known and known to me to be the individual described in, and who executed the foregoing instrument, and acknowledged to me that he executed the same. (Notary Public) 59 EXHIBIT A The plan(s) or diagram(s) comprising this Exhibit are attached hereto at the back cover of this Lease. 60 EXHIBIT B RULES AND REGULATIONS 1. The sidewalks, and public portions of the Building, such as en trances, passages, courts, elevators, vestibules, stairways, corridors or halls shall not be obstructed or encumbered by any tenant or used for any purpose other than ingress and egress to and from the demised premises. 2. No awnings or other projections shall be attached to the outside walls of the Building. No curtains, blinds, shades, louvered openings or screens shall be attached to or hung in, or used in connection with, any window or door of the demised premises, without the prior written consent of Landlord* unless installed by Landlord. 3. No sign, advertisement, notice or other lettering shall be exhibited, inscribed, painted or affixed by any tenant on any part of the outside of the demised premises or Building or on corridor walls. Signs on entrance door or doors shall conform to building standard signs, samples of which are on display in Landlord's rental office. Signs on entrance doors shall, at the tenant's expense, be inscribed, painted or affixed for each tenant by sign makers approved by Landlord.** In the event of the violation of the foregoing by any tenant, Landlord may remove same without any liability, and may charge the expense incurred by such removal to the tenant or tenants violating this rule. 4. The sashes, sash doors, skylights, windows, heating, ventilating and air conditioning vents and doors that reflect or admit light and air into the halls, passageways or other public places in the building shall not be covered or obstructed by any tenant, nor shall any bottles, parcels, or other articles be placed on the window sills. 5. No show cases or other articles shall be put in front of or affixed to any part of the exterior of the Building, nor placed in the public halls, corridors or vestibules without the prior written consent of Landlord. * (which consent shall not be unreasonably withheld or delayed), **which approval shall not be unreasonably withheld or delayed. 61 6. Whenever Tenant shall submit to landlord any plan, agreement or other document for Landlord's consent or approval, or review and acceptance, Tenant agrees to pay landlord as additional rent, on demand, a processing fee in a sum equal to the reasonable fee of any architect, engineer or attorney employed by landlord to review said plan, agreement or document. * 7. The water and wash closets and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed, and no sweepings, rubbish, rags, or other substances shall be thrown therein. All damages resulting from any misuse of the fixtures shall be borne by the Tenant who, or whose servants, employees, agents, visitors or licensees, shall have caused the same. 8. No tenant shall in any way deface any part of the demised premises or the Building of which they form a part. No tenant shall lay linoleum, or other similar floor covering, so that the same shall come in direct contact with the floor of the demised premises, and, if linoleum or other similar floor covering is desired to be used, an interlining of builder's deadening felt shall be first affixed to the floor, by a paste or other material, soluble in water, the use of cement or other similar adhesive material being expressly prohibited. 9. No bicycles, vehicles or animals of any kind shall be brought into or kept in or about the premises. No cooking shall be done or permitted by any Tenant on said premises except in conformity to law and then only in the utility kitchen, if any, as set forth in Tenant's layout, which is to be primarily used by Tenant's employees for heating beverages and light snacks. No tenant shall cause or permit any unusual or objectionable odors to be produced upon or permeate from the demised premises. 10. No space in the Building shall be used for manufacturing, distribution, or for the storage of merchandise or for the sale of merchandise, goods or property of any kind at auction. 11. No tenant shall make or permit to be made. any unseemly or disturbing noises or disturbing noises or reasonably disturb or interfere with occupants of the Building or neighboring buildings or premises or those having business with them, whether by the use of any musical instrument, * The provisions of this Rule 6 shall not apply to the Initial Alteration Work (as hereinafter defined in Article 45). 62 radio, talking machine, unmusical noise, whistling, singing, or in any other way. No tenant shall throw anything out of the doors, windows or skylights or down the passageways. 12. No tenant, nor any of the tenant's servants, employees, agents, visitors or licensees, shall at any time bring or keep upon the demised premises any inflammable, combustible or explosive fluid, or chemical substance, other than reasonable amounts of cleaning fluids and solvents required in the normal operation of tenant's business offices. 13. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by any tenant, nor shall any changes be made in existing locks or the mechanism thereof, without the prior written approval of the landlord and unless and until a duplicate key is delivered to Landlord. Each tenant must, upon the termination of his tenancy, restore to the Landlord all keys of stores, offices and toilet rooms, either furnished to, or otherwise procured by, such tenant, and in the event of the loss of any keys, so furnished, such tenant shall pay to landlord the cost thereof. 14. All removals, or the carrying in or out of any safes, freight, furniture or bulky matter of any description, must take place during the hours and pursuant to such procedures as Landlord or its agent may reasonably determine from time to time. Landlord reserves the right to inspect all freight to be brought into the Building and to exclude from the Building all freight which violates any of these Rules and Regulations or the Lease of which these Rules and Regulations are a part. 15. No tenant shall occupy or permit any portion of the premises demised to it to be occupied as an office for a public stenographer or typist, or for the possession, storage, manufacture, or sale of liquor, narcotics, tobacco in any form, or as a barber or manicure shop or as a public employment bureau or agency, or for a* public finance (personal loan) business. No tenant shall engage or pay any employees on the demised premises, except those actually working for such tenant on said premises, nor advertise for laborers giving an address at said premises. 16. Landlord shall have the right to prohibit any advertising by any tenant, mentioning the Building, which, in Landlord's reasonable opinion, tends to impair the reputation of the Building or its * personal loan business (except as may be incidental to Tenant's business). The foregoing shall not apply to possession by Tenant and its employees of small quantities of liquor and tobacco for personal use, and of narcotics prescribed by a medical doctor or otherwise lawful for personal use. 63 desirability as a building for offices, and upon written notice from landlord, tenants shall refrain from or discontinue such advertising. 17. Landlord reserves the right to exclude from the Building between the hours of 6:00 P.M. and 8:00 A.M. and at all hours on Sundays and legal holidays all persons who do not present a pass to the Building signed by a tenant. Each tenant shall be responsible for all persons for whom such pass is issued and shall be liable to Landlord for all acts of such persons. 18. At the option of Tenant Landlord, the Tenant may agree to purchase from Landlord or its agents all lamps and bulbs used in the demised premises and to pay for the cost of installation thereof. 19. The premises shall not be used for lodging or sleeping or for any immoral or illegal purpose. 20. Tenant shall employ pay to Landlord the cost of an exterminator* to keep the demised premises free from vermin.** 21. The requirements of tenants will be attended to only upon application at the office of the Building. Building employees shall not perform any work or do anything outside of their regular duties, unless under special instructions from the office of Landlord. 22. Canvassing, soliciting and peddling in the Building are prohibited and each tenant shall cooperate to prevent the same. 23. There shall not be used in any space, or the public halls of any building, either by any tenant or by jobbers or others, in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires and side guards. No hand trucks shall be used in passenger elevators. 24. Tenants, in order to obtain maximum effectiveness of the cooling system, shall lower and/or close Venetian or vertical blinds or drapes when the sun's rays fall directly on windows of demised premises and shall permit Landlord to install and maintain on the interior of said windows mylar or other such insulating materials. 25. In order that the Building can and will maintain a uniform ap pearance to those outside of same, each Tenant in building perimeter areas shall (a) use only*** building standard lighting in *reasonably acceptable to Landlord **(or, at Tenant's option, Tenant may pay Landlord the reasonable cost of such exterminator, and Landlord will arrange for such service). *** lighting reasonably approved by Landlord 64 areas where lighting is visible from the outside of the Building and (b) use only building standard venetian or vertical blinds* in window areas which are visible from the outside of the Building. 26. Replacement of ceiling tiles after they are removed for Tenant by telephone company installers, in both the demised premises and the public corridors, will be charged to Tenant on a per tile basis. ** 27. All paneling, grounds or other wood products not considered fur niture shall be of fire retardant materials. Before installation of any such materials, certification of the materials' fire retardant characteristics shall be submitted to Landlord, or its agents, in a manner satisfactory to the Landlord. Whenever the above rules conflict with any of the rights or obligations of Tenant pursuant to the provisions of the Articles of this Lease, the provisions of the Articles shall govern. * reasonably approved by landlord ** The foregoing shall not apply to any full floor premises occupied by Tenant. **This Section ("Lavatories in the Core") is not part of Landlord's cleaning obligation under Section 27.12 of this Lease. This Section appears here soley as a reference in connection with Subdivision of Article 51 of this Lease. 65 EXHIBIT C CLEANING SCHEDULE GENERAL All linoleum, rubber, asphalt file and other similar types of hard- surfaced flooring to be swept nightly, using approved dust-check type of mop. All carpeting and rugs to be vacuum-cleaned nightly. Hand dust and wipe clean all furniture, fixtures and window sills nightly; wash sills when necessary. Empty and clean nightly all waste receptacles of customary office size. Empty and clean all ash trays and screen all sand urns nightly. Dust interior of all waste disposal cans and baskets nightly; damp-dust as necessary. Wash clean all water fountains and coolers nightly. Dust all telephones as necessary. Sweep all private stairway structures nightly. LAVATORIES IN THE CORE ** Sweep and wash all lavatory floors nightly using proper disinfect- ants. Wash and polish all minors, powder shelves, bright work and enameled surfaces in all lavatories nightly. Wash and disinfect all basins, bowls and urinals throughout all lavatories, nightly. Wash all toilet seats, nightly. Empty paper towel receptacles and transport waste paper to designated area in basement, nightly. Fill toilet tissue holders, towel receptacles and soap dispensers, nightly. Empty sanitary disposal receptacles, nightly Thoroughly wash and polish all wall tile and stall surface as often as necessary. *Dust and clean all glass furniture tops with impregnated cloths. -67- RIDER ATTACHED TO AND FORKING A PART OF LEASE BETWEEN KID-CITIC ASSOCIATES, LANDLORD, MD FIRST ALBANY COMPANIES INC., TENANT ARTICLE 45 Commencement Date; Term; Rent; Initial Alteration Work; Work Contribution, Etc. A. The term of this Lease shall commence on the date (the "Commencement Date") when this Lease is executed and delivered by Landlord and Tenant, and Landlord makes available to Tenant possession of the demised premises; and the term of this Lease shall expire on the last day of the twelfth Lease Year (as hereinafter defined), unless it shall sooner end as in this Lease provided. Landlord shall, in accordance with the foregoing, fix the Commencement Date and notify Tenant of the date so fixed. When the Commencement Date has so been determined; the parties hereto shall, within thirty (30) days thereafter, at Landlord's request, execute a written agreement confirming such date as the Commencement Date. Any failure of the parties to execute such written agreement shall not affect the validity of the Commencement Date as fixed and determined by Landlord, as aforesaid. The term "Lease Year" when used in this Lease shall mean the twelve months commencing on the first day of the month following the month in which occurs the Rent Commencement Date (as hereinafter defined) and each subsequent period of twelve months. The first Lease Year shall include the period, if any, from the Rent Commencement Date to the end of the month in which the Rent Commencement Date occurs. The term "Rent Commencement Date" when used in this Lease shall mean the date which is 150 days after the Commencement Date. B. Supplementing the preface of this Lease, Tenant shall pay Landlord fixed annual rent (without electricity and subject to increase by the Escalated Amount, as hereinafter defined and described in this Subdivision B) at the following rates: $500,000 a year for the first Lease Year; $750,000 a year for the second Lease Year; $950,000 a year for the third Lease Year; -68- $1,013,220 a year for each of the fourth and fifth Lease Years; $1,046,994 a year for each of the sixth, seventh, eighth and ninth Lease Years; and $1,080,768 a year for each of the tenth, eleventh and twelfth Lease Years. The foregoing fixed annual rental rates shall be increased by an amount equal to the Escalated Amount (as hereinafter defined), for the period from January 1, 2000 through the expiration of the initial term of this Lease. For purposes of this Lease, the "Escalated Amount" shall mean an amount equal to the total of all real estate tax and operating expense escalation additional rent due under Article 46 of this Lease for the 1999 comparative year (as hereinafter defined in said Article 46). The Escalated Amount shall not include any amount paid under said Article 46 during the 1999 comparative year on account of any other comparative year. Landlord acknowledges that the final determination of the real estate tax and operating expense escalation additional rent due under said Article 46 for the 1999 comparative year may be delayed due to Tenant's right under said Article 46 to dispute such amounts and to audit Landlord's books and records with respect to the operating expenses for the Building; pending the resolution of any such dispute, the Escalated Amount shall be deemed to be the amounts set forth in the statements furnished to Tenant under Article 46 for the 1999 comparative year; upon the resolution of any such dispute (and the final determination of the real estate tax and operating expense escalation additional rent due under said Article 46 for the 1999 comparative year), Landlord and Tenant shall make adjustment for any overage paid by Tenant or for any deficiency owed by Tenant. C. Supplementing Article 41 of this Lease and Subdivision A of this Article: Tenant acknowledges that it has been advised that the demised premises is currently occupied by a certain tenant (the "Existing Tenant") pursuant to a certain lease with Landlord, the term of which expires on May 31, 1996. Landlord shall not be liable to Tenant in any way if the Existing Tenant fails to vacate all or any portion of the demised premises by or before the May 31, 1996 expiration date of the term of its Lease. However, if such tenant fails to vacate such space by or before such expiration date, Landlord will then use reasonable diligence to cause such tenant to vacate such space, including, without limitation, the commencement and diligent prosecution of a summary holdover dispossess proceeding. - 69 - Notwithstanding anything contained herein to the contrary, if Landlord is unable to make possession of the demised premises available to Tenant within twelve (12) months after the date of this Lease, then, at Tenant's election to be exercised by written notice given by Tenant to Landlord within ten (10) days after the end of such twelve (12) month period (time being of the essence), unless Landlord makes possession of such space available to Tenant within twenty (20) days after the end of such ten (10) day period, the term of this Lease shall end as if the last day of such twelve (12) month period were the date originally set forth in this Lease as the expiration date of the term, and the parties shall have no further obligations or liabilities to each other hereunder, except that Landlord shall return any advance rent or security deposit paid by Tenant hereunder. D. Supplementing Article 30 of this Lease, Tenant agrees that it will effect all such alterations, additions and improvements in and to the demised premises as are necessary for Tenant to conduct its business therein (the "Initial Alteration Work"). Such Initial Alteration Work shall include the installation of all new partitions, floor covering, ceiling, wall covering, lighting, fixtures and equipment, so as to create a first class office installation in the demised premises. Such Initial Alteration Work may also include the installation in the demised premises of a file room, a computer room and an uninterrupted power supply (UPS) Landlord agrees that the Initial Alteration Work may be effected in stages over a period of time between the commencement date of the term of this Lease and October 31, 1997. Tenant shall, within thirty (30) days after the execution of this Lease by Tenant, furnish Landlord for its approval a complete set of architectural and engineering plans and specifications for the Initial Alteration Work. Landlord, promptly upon receipt of same, shall approve such plans and specifications, or return them with advice as to what changes are required for its approval to be forthcoming. In the event such plans and specifications are so returned to Tenant, Tenant shall revise them to incorporate such changes as are required for Landlord's approval to be forthcoming and shall resubmit such revised plans and specifications to Landlord, within five (5) days after they are returned (unapproved) by Landlord. Such plan approval process shall continue until Landlord has approved a complete set of architectural and engineering plans and specifications for the Initial Alteration Work. Tenant, at its own cost and expense (except as provided in Subdivision F of this Article), will cause the Initial Alteration Work to be effected in a good and workmanlike manner, in accordance with Tenant's approved plans and specifications, in accordance with the provisions of Article 3, as supplemented by -70- Article 47, and all other applicable provisions of this Lease, and in compliance with all applicable laws, rules and regulations. E. Landlord agrees that, at its sole cost and expense, it will effect the following work ("Landlord's Work") in and to the demised premises: (a) In connection with the Initial Alteration Work, Landlord shall be solely responsible for and shall, at Landlord's expense, cause to be effected any removal, encapsulation, encasement or other treatment of asbestos required by laws, rules, regulations or ordinances of any governmental authority having jurisdiction over the demised premises (and Landlord will provide Tenant with documentary evidence of such abatement work, including any form required in order for Tenant to obtain its building permit). However, Landlord and Tenant agree that any such compliance made necessary by improvements or other work effected by or for Tenant after Tenant opens for business at the demised premises, shall be effected at Tenant's expense (b) Landlord shall effect all work necessary to remove the internal stairway between the 41st and 42nd floors of the Building, including without limitation, the closing of the slab between such floors. (c) Tenant acknowledges that it has been advised that there is currently a 400 amp, 460 volts, three phase switch located on the 11th floor of the Building. Landlord will effect all work necessary to extend such existing electrical service to a new switch on the 42nd floor of the Building at a location designated by Landlord. It is further acknowledged and understood, however, that the extension of such electrical service to the 42nd floor of the Building will result in a so-called "line loss" of available amperage, resulting in actual delivered service of between 275 and 325 amps at 460 volts, three phase. Landlord will effect Landlord's Work in a good and workmanlike manner, and in accordance with all applicable laws, rules and regulations. Landlord will effect Landlord's Work simultaneously with the performance of the Initial Alteration Work by Tenant. Tenant shall cooperate with Landlord by providing Landlord and its contractors with such access to the demised premises as is necessary for Landlord to effect all of Landlord's Work. Landlord shall cooperate with Tenant by consulting with -71- Tenant and its contractors and by using reasonable diligence to coordinate the performance of Landlord's Work with the performance of the Initial Alteration Work. F. Landlord will reimburse Tenant for up to the first $1,350,960 of the costs of labor and materials, excluding architectural and engineering fees and the costs of Tenant's personal property (as described in Section 3.05), in effecting the Initial Alteration Work. If such costs are lower than $1,350,960, then Landlord's aforedescribed contribution obligation shall be satisfied by its reimbursing Tenant such amount lower than $1,350,960. Any such costs in excess of $1,350,960 shall be paid promptly by Tenant. In connection with the Initial Alteration Work, Tenant shall provide Landlord with true copies of paid bills or bills which have been certified by Tenant as approved for payment, showing the cost of the items of the Initial Alteration Work to be included in the aforesaid total up to $1,350,960 and Landlord shall reimburse Tenant for the amount set forth in said bills in accordance with Landlord's obligation hereunder. (See Subdivision G of this Article.) The foregoing work contribution by Landlord shall be conditioned on Tenant not being in default, beyond any applicable notice and/or grace period, under any of the material terms, covenants and conditions of this Lease. Upon the occurrence of any such default by Tenant, such reimbursement obligation shall be deemed suspended unless and until Tenant fully cures such default, at which time such reimbursement obligation shall resume and continue until Tenant has received the full amount thereof (or Tenant again so defaults). G. Anything contained herein to the contrary notwithstanding, if Tenant, at any time during the term of this Lease after Tenant has been granted all or a portion of the work contribution described in this Article, breaches any covenant, condition or provision of this Lease and fails to cure such breach within any applicable grace period, and provided that this Lease is terminated by Landlord because of such default, then, in addition to all other damages and remedies herein provided and to which Landlord may otherwise be entitled, Landlord shall also be entitled to the repayment of the unamortized portion of any work contribution theretofore enjoyed by Tenant, which sum shall be deemed additional rent hereunder and shall be due upon demand by Landlord. Such unamortized portion shall be computed by multiplying the total work contribution enjoyed by Tenant hereunder by a fraction, the numerator of which shall be 144 minus the total number of calendar months of the term of this Lease which have elapsed after the Commencement Date but prior to such termination, and denominator of which shall be 144. The obligation of Tenant to pay such additional rent (or damages) to -72- Landlord shall survive the expiration or sooner termination of the term of this Lease. Landlord agrees that any additional rent (or damages) which Tenant is obligated to pay to Landlord pursuant to the immediately preceding grammatical paragraph shall be set off against any damages which Tenant is obligated to pay to Landlord on account of any future rents or additional rents under this Lease (see subdivisions (a) and (c) of Section 15.01). H. If and so long as Tenant shall not be in default under any of the material terms, covenants or conditions of this Lease, beyond any grace period, Tenant shall be entitled to a rent credit in the amount of $33,415, which rent credit shall be applied, until fully depleted, against the first fixed annual rents due to Landlord under this Lease. RIDER ATTACHED TO AND FORMING A PART OF LEASE BETWEEN MID-CITY ASSOCIATES, LANDLORD AND FIRST ALBANY COMPANIES INC. ,TENANT 73 ARTICLE 46 TAX AND OPERATING EXPENSE ESCALATION Tenant shall pay to landlord, as additional rent, tax escalation and operating expense escalation in accordance with this Article: (a) Definitions: For the purpose of this Article, the following definitions shall apply: (i)The term "base year" as hereinafter set forth for the determination of expense escalation, shall mean the calendar year 1997. (ii) The term "base tax year" as hereinafter set forth for the determination of real estate tax escalation shall mean the average of the New York City real estate tax years commencing July 1, 1996 and ending June 30, 1997 and commencing July 1, 1997 and ending June 30, 1998 (i.e. "base tax year" representing an amount of taxes).* (iii) The term "The Percentage" shall mean 1.630 percent (1.630%) for real estate tax escalation and shall mean 1.751 percent (1,751%) for expense escalation. The Percentage has been computed on the basis of a fraction, the numerator of which is the rentable square foot area of the presently demised premises and the denominator of which is the total rentable square foot area of the office and commercial space in the building project (excluding garage space), for tax escalation and the denominator of which is the total rentable square foot area of the office space in the building project, for expense escalation. The parties acknowledge and agree that the total rentable square foot area of the presently demised premises shall be deemed to be 33.774 sq. ft., and that the rentable square foot area of the office and commercial space in the building project shall be deemed to be 2,072,136 sq. ft. and that of its office space shall be deemed to be 1,928,539 sq. ft. (iv) The term "the building project" shall mean all of the land together with the improvements in which landlord has an interest below 33rd Street, in Pennsylvania Station and below, on and above ground level in the block bounded by 34th Street, 8th Avenue, 33rd Street, and 7th Avenue, exclusive of the frontage 100 feet deep west of 7th Avenue and the frontage 52 feet 5 1/2 inches deep east of 8th Avenue (i.e., Block 783. Lot 1). (v) The term "comparative year" for tax escalation and shall mean the New York City real estate tax year commencing July 1, 19 and each subsequent period of twelve (12) months;* for expense * or such other period of twelve (12) months occurring during the term of this Lease as hereafter may be duly adopted as the fiscal year for real estate tax purposes by the City of New York. *From and after January 1, 2000, the "base year" shall mean the calendar year 1999, and the "base tax year" shall mean the average of the New York City real estate tax years commencing July 1, 1998 and ending June 30, 1999 and ending June 30, 2000 (i.e., "base tax Year" representing an amount of taxes). ****Where more than one assessment is imposed by the City of New York for any tax year, whether denominated an "actual assessment" or a "transitional assessment" or otherwise, the phrases herein "assessed value" and "assessments" shall mean whichever of the actual, transitional or other assessment is designated by the City of New York as the taxable amount for that tax year. ***** (and, from and after January 1, 2000, for each of tax year 1998/99 and tax year 1999/2000) 74 escalation "comparative year" shall mean the twelve (12) months following the base year and each subsequent period of twelve (12) months * (vi) The term "real estate taxes" shall mean the total of all taxes and special or other assessments levied, assessed or imposed at any time by any governmental authority upon or against the building project** and also any tax or assessment levied, assessed or imposed at any time by any governmental authority in connection with the receipt of income or rents from said building project to the extent that same shall be in lieu of all or a portion of any of the aforesaid taxes or assessments, or additions or increases thereof, upon or against said building project*** a due to a future change in the method of taxation or in the taxing authority, or for any other reason, such franchise, income, transit, profit or other tax or governmental imposition, however designated, shall be levied against Landlord in substitution in whole or in part for the real estate taxes, or in lieu of additions to or increases of said real estate taxes. Then such francise, income, transit, profit or other tax or governmental imposition shall be deemed to be included within the definition of "real estate taxes" for the purpose hereof. As to special assessments which are payable over a period of time extending beyond the term of this Lease, only a pro rata portion thereof, covering the portion of the term of this Lease unexpired at the time of the imposition of such assessment, shall be included in "real estate taxes". If, by law, any assessment may be paid in installments, then, for the purposes hereof (a) such assessment shall be deemed to have been payable in the maximum number of installments permitted by law and (b) there shall be included in real estate taxes, for each comparative year in which such installments may be paid, the installments of such assessment so becoming payable during such comparative year, together with interest payable during such comparative year. (vii)****Where a "transition assessment" is imposed by the City of New York for any tax (fiscal) year, then the phases "assessed value" and "assessments" shall mean the transition assessment for that tax (fiscal) year. (viii) The phrase "real estate taxes payable during the base tax year" shall mean that amount obtained by multiplying the assessed value of the building project for each of tax year 1996/97 and tax year 1997/98***** by the applicable tax rate for such year and then obtaining the avenge of the taxes for such two tax years. *(so that real estate taxes for any comparative year will be the average of the real estate taxes payable for two different tax years). **, any assessment by a business improvement district (BID), ***A franchise, income, transit, profit or other tax or governmental imposition shall not be included within the definition of real real estate taxes for purposes hereof, unless, * (calculated in accordance with generally applied real estate practice, consistently applied) ** the following if incurred or borne in accordance with sound management practices: ***,provided the same are not leased or to be leased to space tenants; 75 (ix) The term "Expenses" shall mean the total of all the costs and expenses incurred or borne by Landlord* with respect to the operation and maintenance of the building project and the services provided tenants therein, including, but not limited to, the costs and expenses incurred for and with respect to** steam and any other fuel; water rates and sewer rents; air-conditioning; ventilation and heating; cleaning, by contract or otherwise, window washing (interior and exterior); elevators; escalators; porter and matron service; Building electric current;* protection and security; lobby decoration, repairs; association fees or dues; maintenance; painting of non-tenant areas*** replacements and improvements which are appropriate for the continued operation of the building project**** fire, extended coverage, boiler and machinery, sprinkler, apparatus, public liability and property damage, rental and plate glass insurance and any insurance required by a mortgagee; management fees; supplies; wages, salaries, disability benefits, pensions, hospitalization, retirement plans and group insurance respecting employees of the Landlord up to and including the building manager; uniforms and working clothes for such employees and the cleaning thereof; expenses imposed on the Landlord pursuant to any law or to any collective bargaining agreement with respect to such employees; workmen's compensation insurance, payroll, social security, unemployment and other similar taxes with respect to such employees. Provided, however, that***** the foregoing costs and expenses shall exclude or have deducted from them, as the case may be and as shall be appropriate: (a) leasing commissions****** (b) Managing agents' fees or commissions in excess of the rates then customarily charged for building management for buildings of like class and character; (c) executives' salaries above the grade of building manager; (d) expenditures for capital improvements except those which under generally applied real estate practice are expensed or regarded as deferred expenses and except for capital expenditures *i.e. Building electric current shall be deemed to mean all electricity purchased for the Building except that which is redistributed to tenants in the Building; the parties acknowledge and agree that Forty percent (40%) of the Building's payment to the public utility for the purchase of electricity shall be deemed to be payment for Building electric current. ****and which are not capital in nature, except as provided in (d) below); ***** notwithstanding the foregoing, ******and other lease related expenses, including legal fees; 76 required by law, in either of which cases the cost thereof shall be included in Expenses for the base year and the comparative year in which the costs are incurred and subsequent comparative years, on a straight line basis, to the extent that such items are amortized over an appropriate period, but not less more than ten years, with an interest factor equal to the prime rate of the Chemical Bank of New York at the time of Landlord's having incurred said expenditure. (e) amounts received by Landlord through proceeds of insurance to the extent the proceeds are compensation for expenses which were previously included in Expenses hereunder; (f) cost of repairs or replacements incurred by reason of fire or other casualty, but only to the extent to which Landlord is compensated therefor through proceeds of insurance, or caused by the exercise of the right of eminent domain; (g) advertising and promotional expenditures; (h) legal fees for disputes with tenants and legal and auditing fees, other than legal and auditing fees reasonably incurred in connection with the maintenance and operation of the Building or in connection with the preparation of statements required pursuant to additional rent or lease escalation provisions; (i) costs incurred in performing work or furnishing services for individual tenants (including this Tenant) at such tenant's expense to the extent that such work or service is in excess of any work or service landlord at its expense is obligated to furnish to this Tenant; costs of performing work or furnishing services for tenants other than this Tenant at Landlord's expense to the extent that such work or service is in excess of any work or service landlord is obligated to furnish to this Tenant at Landlord's expense; if any work or service is performed or furnished by landlord to or for any tenant other than this Tenant at such tenant's expense, then, but only to the extent that landlord is obligated to perform such work or furnish such service to or for this Tenant at landlord's expense, such work or service shall be deemed to have been performed or furnished to. such other tenant at landlord's expense and shall therefore be included in Expenses. * If landlord shall purchase any item of capital equipment or make any capital expenditure designed to result in net savings or reductions in Expenses, then the costs for same shall be included in Expenses. The costs of capital equipment or capital expenditures are * ;see page 76A following this page. -76A- (j)real estate taxes; (k)capital improvements, except as provided in (d) above; (1)interest on debt or amortization payments or any other payments under any mortgage or under any ground or underlying lease; (m)real estate brokerage commissions and other expenses which are related to the sale of the Building; (n)services to retail stores or ground floor offices; (o)all items and services for which Tenant or other tenants reimburse Landlord or are paid by third parties or which third parties are liable to pay or reimburse Landlord; (p)costs of correcting defects (whether lawful or otherwise) and the construction of the Building; (q)Any cost representing an amount paid to a person or entity affiliated with Landlord or any of its principals which is in excess of the amount which would have been paid had there not been such a relationship; and (r) Landlord's general business operation overhead, including, without limitation, compensation paid to its officers, directors and partners other than the salary for the building manager. -77A- After Landlord has furnished Tenant with the aforesaid statement, Tenant shall pay Landlord, together with the monthly installments of rent due on June 1 and December 1 of each such comparative year, an amount equal to one half (1/2) of the total sum of additional rent due from Tenant to Landlord pursuant to such statement for such comparative year. If, during the term of this Lease, any such taxes are required by the taxing authority or by a mortgagee's tax escrow requirements, to be paid, in full or in quarterly or other installments, on any other date or dates than as presently required, then Tenant's tax escalation payment(s) shall be correspondingly accelerated so that said payments are due at least thirty (30) days prior to the date proportionate payments are due to the taxing authority or the mortgagee. If a statement is furnished to Tenant after the commencement of the comparative year in respect of which such statement is rendered, Tenant shall, within thirty (30) days thereafter pay to Landlord an amount equal to those installments or the total tax escalation payable as provided in the preceding sentence during the period prior to the first day of the month next succeeding the month in which the applicable statement has been furnished. 77 so to be included in Expenses for the base year and the comparative year in which the costs are incurred and subsequent comparative years, on a straight line basis, to the extent that such items are amortized over such period of time as reasonably can be estimated as the time in which such savings or reductions in Expenses are expected to equal Landlord's costs for such capital equipment or capital expenditure, with an interest factor equal to the prime rate of the chemical Bank of New York at the time of Landlord's having incurred said costs. If Landlord shall lease any such item of capital equipment designed to result in net savings or reductions in Expenses, then the rentals and other costs paid pursuant to such leasing shall be included in Expenses for the comparative year in which they were incurred. If during all or part of the base year or of any comparative year. Landlord shall not furnish any particular items(s) of work or service (which would constitute an Expense hereunder) to portions of the building project, due to the fact that such portions are not occupied or leased, or because such item of work or service is not required or desired by the tenant of such portion, or such tenant is itself obtaining and providing such item of work or service, or for other reasons, then, for the purposes of computing the additional rent payable hereunder, the amount of the expenses for such item for such period shall be increased by an amount equal to the additional operating and maintenance expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such item of work or services to such portion of the building project (b) Real Estate Taxes: 1.In the event that the real estate taxes payable for any comparative year shall exceed the amount of such real estate taxes payable during the base tax year, Tenant shall pay to Landlord, as additional rent for such comparative year, an amount equal to The Percentage of the excess.* By or after the start of the comparative year following the base tax year, and by or after the start of each comparative year thereafter, Landlord shall furnish to Tenant a statement of the real estate taxes payable for such comparative year, and a statement of the real estate taxes payable during the base tax year.** If the real estate taxes payable for such comparative year exceed the real estate taxes payable during the base tax year, additional rent for such comparative year, in an amount equal to The Percentage of the excess, shall be due from Tenant to Landlord and such additional rent shall be payable to Tenant to Landlord*** within ten (10) days after receipt of the aforesaid statement. * (See Subdivision (i) of this Article.) ** Upon Tenant's written request, Landlord shall provide Tenant with copies of all pertinent tax bills. ***as follows: (See page 77A following this page) *actual, then customary, out-of-pocket **Landlord's obligations under this Subdivision (b) 3 shall survive the end of the term of this Lease. ***(See Subdivision (i) of this Article.) ****such CPA or by Landlord, in reasonable detail 78 2. Should the real estate taxes payable during the base tax year be reduced by final determination of legal proceedings, settlement or otherwise, then, the real estate taxes payable during the base tax year shall be correspondingly revised, the additional rent theretofore paid or payable hereunder for all comparative years shall be recomputed on the basis of such reduction, and Tenant shall pay to Landlord as additional rent, within thirty (30) ten (10) days after being billed therefor, any deficiency between the amount of such additional rent as theretofore computed and the amount thereof dues as the result of such recomputations. Should the real estate taxes payable during the base tax year be increased by such final determination of legal proceedings, settlement or otherwise, then appropriate recomputation and adjustment also shall be made. 3. If, after Tenant shall have made a payment of additional rent under this subdivision (b), Landlord shall receive a refund of any portion of the real estate taxes payable for any comparative year after the base tax year on which such payment of additional rent shall have been based, as a result of a reduction of such real estate taxes by final determination of legal proceedings, settlement or otherwise, Landlord shall within then (10) days after receiving the refund pay to Tenant The Percentage of the refund less The Percentage of* expenses (including attorney's and appraiser's fees) incurred by Landlord in connection with any such application or proceeding. If, prior to the payment of taxes for any comparative year, Landlord shall have obtained a reduction of that comparative year's assessed valuation of the building project, and therefor of said taxes, then the term "real estate taxes" for that comparative year shall be deemed to include the amount of Landlord's* expenses in obtaining such reduction in assessed valuation, including attorney's fees and appraisers' fees.** (c) Expenses: 1. If the Expenses for any comparative year shall be greater than the Expenses for the base year, Tenant shall pay to Landlord, as additional rent for such comparative year, in the manner hereinafter provided, an amount equal to The Percentage of the excess of the Expenses for such comparative year over the Expense for the base year (such amount being hereinafter called the "Expense Payment").*** Following the expiration of each comparative year and after receipt thereof from Landlord's certified public accountant, Landlord shall submit to Tenant a statement, certified by**** Landlord, setting forth the Expenses for the preceding comparative year, the 79 Expenses for the base year, and the Expense Payment, if any due to Landlord from Tenant for such comparative year. The rendition of such statement to Tenant shall constitute prima facie proof of the accuracy thereof and, if If such statement shows an Expense Payment due from Tenant to Landlord with respect to the preceding comparative year then (i) Tenant shall make payment of any unpaid portion thereof within thirty (30) ten (10) days after receipt of such statement; and (ii) Tenant shall also pay to Landlord, as additional rent, within thirty (30) ten (10) days after receipt of such statement, an amount equal to the product obtained by multiplying the total Expense Payment for the preceding comparative year by a fraction, the denominator of which shall be twelve (12) and the numerator of which shall have elapsed prior to the first day of the month immediately following the rendition of such statement; and (iii) Tenant shall also pay to Landlord, as additional rent, commencing as of the first day of the month following rendition of such statement and on the first day of each month thereafter until a new statement is rendered, one-twelth (1/12) of the total Expense Payment for the preceding comparative year. The aforesaid monthly payments based on the total Expense Payment for the preceding comparative year shall be adjusted to reflect, if Landlord can reasonable so estimate, known increases or decreased in rates, for the current comparative year, applicable to the categories involved in computing Expenses, whenever such increases become known prior to or during such current comparative year. The payments required to be made under (ii) and (iii) above shall be credited toward the Expense Payment due from Tenant for the then current comparative year, subject to adjustement as and when the statement for such current comparative year is rendered by Landlord.* (d) The statements of the real estate taxes and of the Expenses to be furnished by Landlord as provided in subdivisions (b) and (c) above shall be certified by Landlord, and shall be prepared in reasonable detail for the Landlord by a certified public accountant (who may be the CPA now or then currently employed by Landlord for the audit of its accounts); said certified public accountant may rely on Landlord's allocations and estimates wherever operating cost allocations or estimates are needed for this Article. The statement thus furnished to Tenant shall** constitute a final determination as between Landlord and Tenant of the real estate taxes and Expenses for the periods represented thereby, unless Tenant within ninety (90) thirty (30) days after they are furnished shall give a written notice to Landlord that it disputes their accuracy or their appropriateness. which notice shall specify the * If such statement for such current comparative year indicates that the payments made under (ii) and (iii) above exceeded the actual Expense Payment for such comparative year, by an amount equal to the greater of (a) $100,000 or (b) 10%, then Landlord shall pay Tenant interest on the amount of such overpayment, at the rate set forth in Section 20.04 hereof, from the date such overpayment was made by Tenant. **, subject to mathematical errors in calculation and computation, 80 particular respects in which the statement is inaccurate or inappropriate. If Tenant shall so dispute said statements then, pending the resolutions of such dispute, Tenant shall pay the additional rent to Landlord in accordance with the statements furnished by Landlord* (e) In no event shall the fixed annual rent under this Lease be reduced by virtue of this Article. (f) If the term of this Lease commences on a day which is not the first day of a comparative year, then the additional rent due hereunder for such comparative year shall be a proportionate share of said additional rent for the entire comparative year, said proportionate share to be based upon the length of time that the term of this Lease will be in existence during such comparative year. Upon the date of any expiration or termination of this Lease (except termination because of Tenant's default), whether the same be the date hereinabove set forth for the expiration of the term or any prior or subsequent date, a proportionate share of said additional rent for the comparative year during which such expiration or termination occurs shall immediately become due and payable by Tenant to landlord, if not theretofore already billed and paid. The said proportionate share shall be based upon the length of time that this Lease shall have been in existence during such comparative year. Landlord shall, as soon as reasonably practicable, compute the additional rent due from Tenant, as aforesaid, which computations shall either be based on that comparative year's actual figures or be an estimate based upon the most recent statements theretofore prepared by Landlord and furnished to Tenant under subdivisions (b) and (c) above. If an estimate is used, then Landlord shall cause statements to be prepared on the basis of the comparative year's actual figures as soon as they are available, and within ten (10) days after such statement or statements are prepared by Landlord and furnished to Tenant, Landlord and Tenant shall make appropriate adjustments of any estimated payments theretofore made. (g) Landlord's and Tenant's obligation to make the adjustments referred to in subdivision (f) above shall survive any expiration or termination of this Lease. (h) Any delay or failure of landlord in billing for any additional rent hereunder shall not constitute a waiver of or in any way impair the continuing obligation of Tenant to pay such additional rent. (i) (See Page 80B following this page.) *(i) (See Page 80A following this page.) - 8OA- After payment of said additional rent with respect to operating expenses only, Tenant shall have the right, during reasonable business hours and upon not less than twenty (20) days' prior written notice to Landlord, to examine Landlord's relevant books and records with respect to the foregoing (including such records in respect to the base year), provided such examination is commenced within eighteen (18) months after the giving of such written notice by Tenant and concluded within thirty (30) days thereafter. Landlord shall cooperate with Tenant by making available to Tenant such relevant books and records as Tenant reasonably requires in connection with such examination. Any such dispute as to operating expenses shall be resolved by arbitration in accordance with the provisions of Article 31 of this Lease. In the event the award in any such arbitration shows that Tenant was overcharged by at least an amount equal to the greater of (i) $100,000 or (ii) ten percent (10%) of the Expense Payment determined to be due hereunder, then Landlord shall, in addition to refunding to Tenant the amount of such overcharge, pay Tenant interest on such amount, at the rate set forth in Section 20.04 of this Lease, from and after the date payment was made by Tenant -8OB- Notwithstanding anything hereinabove contained to the contrary, it is the intention of the parties that this Tenant's obligation to pay escalation additional rents for Expenses and for real estate taxes shall be capped or limited for the period through the calendar year 1999. The intention is that the cap be based on a limitation on the increase of Expenses from and after the base year and a limitation in the increase of real estate taxes from and after the base tax year. The total of the Expense Payment and the real estate tax escalation additional rent payable hereunder for the 1998 comparative year shall not be more than an amount equal to ten percent (10%) of the total of the Expense Factor and the Tax Factor (each as hereinafter defined); and the total of the Expense Payment and the real estate tax escalation additional rent payable hereunder for the 1999 comparative year shall not be more than an amount equal to twenty percent (20%) of the total of the Expense Factor and the Tax Factor. For Purposes of this cap or limitation on escalation additional rents, the "Expense Factor" shall mean an amount equal to (x) The Percentage for expense escalation (1.751%) multiplied by (y) the Expenses for the base year; and The "Tax Factor" shall mean an amount equal to (x) The Percentage for real estate tax escalation (1.630%) multiplied by (y) the real estate taxes payable for the base tax year. The following illustrates the manner in which the above is intended to operate: For example only: If the Expenses for the base year are $13,500,000 and the real estate taxes payable for the base tax year are $12,500,000, then the Expense Factor would be: 1.751% x $13,500,000 or $236,385; and the Tax Factor would be: 1.630% x $12,500,000 or $203,750; - 8OC- accordingly, the total of Expense Payment and real estate tax escalation additional rent payable hereunder for the 1996 comparative year shall not be more than an amount equal to: 10% x ($236,385 + $203,750) or $44,013.50 and the total Expense Payment and real estate tax escalation additional rent payable hereunder for the 1999 comparative year shall not be more than an amount equal to: 20% x ($236,385 + $203,750) or $88,027. It is understood and agreed that there shall be no limitation or so- called cap on any increase in the amount of real estate tax or operation expense escalation additional rent due hereunder for the comparative year 2000 or for any comparative year thereafter during the term of this Lease. -81- Article 47 Alterations A. Supplementing Article 3 hereof, Landlord will not unreasonably withhold, condition or delay approval of written requests of Tenant to make non-structural interior alterations, additions and improvements (herein referred to as "alterations") in and to the demised premises, provided that such alterations do not adversely affect utility services or plumbing and electrical lines or other Systems of the Building. All alterations shall be performed in accordance with the following terms and conditions: (a) All such alterations costing more than $50,000 shall be performed in accordance with plans and specifications first submitted to Landlord for its prior written approval. Landlord shall be given, in writing, a good description of all other alterations. (b) All alterations shall be done in a good and workmanlike manner. Tenant shall, prior to the commencement of any such alterations, at its sole cost and expense, obtain and exhibit to Landlord any governmental permit required in connection with such alterations. (c) All alterations shall be done in compliance with all other applicable provisions of this Lease and with all applicable laws, ordinances, directions, rules and regulations of governmental authorities having jurisdiction, including, without limitation, The Americans with Disabilities Act of 1990 and New York City Local Law No. 58/87 and similar present or future laws, and rules and regulations issued pursuant thereto, and also (except as provided in Subdivision E of Article 45) No. 76 and similar present or future laws, and rules and regulations issued pursuant thereto, on abatement, storage, transportation and disposal of asbestos, which work, if required, shall be effected at Tenant's sole cost and expense, by contractors and consultants approved by Landlord and in strict compliance with the aforesaid laws and regulations and with Landlord's rules and regulations thereon. (d) All work shall be performed with union labor having the proper jurisdictional qualifications. (e) Tenant shall keep the Building and the demised premises free and clear of all liens for any work or material claimed to have been furnished to Tenant or to the demised premises. (f) Prior to the commencement of any work by or for Tenant, Tenant shall furnish to Landlord certificates -82- evidencing the existence of the following insurance (of Tenant or of any contractor performing such work for Tenant): (i) Worker's compensation insurance covering all persons employed for such work and with respect to whom death or bodily injury claims could be asserted against Landlord, Tenant or the demised premises. (ii) Broad form general liability insurance written on an occurrence basis naming Tenant as an insured and naming Landlord and its designees as additional insureds, with limits of not less than $3,000,000 combined single limit for personal injury in any one occurrence, and with limits of not less than $500,000 for property damage. (The foregoing limits may be revised from time to time by Landlord to such higher limits as Landlord from time to time reasonably requires.) Tenant, at its sole cost and expense, shall cause all such insurance to be maintained at all times when the work to be performed for or by Tenant is in progress. All such insurance shall be in a company authorized to do business in New York and all policies, or certificates therefor, issued by the insurer and bearing notation evidencing the payment of premiums, shall be delivered to Landlord. Blanket coverage shall be acceptable, provided that coverage meeting the requirements of this paragraph is assigned to Tenant's location at the demised premises. (g) All work to be performed by Tenant shall be done in manner which will not unreasonably interfere with or disturb other tenants and occupants of the Building. (h) Any alterations or other work and installations in and for the demised premises, which shall be consented to by Landlord as provided herein, and which is effected by Landlord, its agents or contractors at Tenant's request, shall be paid for by Tenant promptly when billed. (i) Supplementing Section 3.04 of this Lease, Landlord may require Tenant to remove from the demised premises, upon the expiration or sooner termination of the term of this Lease, any nonstandard office installation (e.g., internal stairways, private lavatories, etc., but not raised flooring or - 83 - pantries) made by or for Tenant, provided Landlord makes such election at the time it approves such installation (but only if Tenant's request for approval reminds Landlord in writing of the need to make such election) B. Supplementing Article 3 hereof, and notwithstanding anything to the contrary contained in this Article, Landlord's prior written approval will not be required with respect to non-structural interior alterations costing $50,000 or less, or decorative work such as painting or wall covering, provided that such alterations or decorative work do not affect utility services or plumbing or electrical lines or other systems of the Building; and provided, further, that all such alterations and decorative work shall be performed in accordance with the provisions set forth in Article 3, as supplemented by this Article 47, and all other applicable provisions of the Lease (except the requirement of Landlord's approval of plans and specifications for such work; Tenant, nevertheless, shall be required to provide Landlord with a copy of any existing plans and specifications for such work, or a good written description, as the case may be, at least ten (10) days prior to the start of the alteration in question). -84- Article 48 Non - Disturbance Agreement Supplementing Article 6 of this Lease, Landlord will obtain, for the benefit of Tenant, from the ground lessor under The Ground Lease and/or from the holder of any mortgage which may now or hereafter encumber The Ground Lease or Landlord's interest in the Building, a non- disturbance agreement in the form then customarily used by such ground lessor and/or mortgagee, providing in any event in substance that so long as Tenant is not in default under this Lease beyond any applicable notice and/or grace period, then the grantor of such non-disturbance agreement will not disturb Tenant's occupancy or terminate this Lease or take any action to recover possession of the demised premises, notwithstanding any default under, or termination of, such ground lease or any foreclosure of such mortgage Tenant agrees to execute and deliver the aforedescribed non-disturbance agreements. Any fees or costs imposed by the grantor of the non-disturbance agreement or its attorneys for the granting of such non-disturbance agreement, shall be shared equally by Landlord and Tenant. -85- Article 49 Renewal Option Tenant shall have the option to extend and renew the term of this Lease with respect to the then existing demised premises in its then "as is" condition, for one (1) additional period of five (5) years commencing on the first day of the thirteenth Lease Year, and ending on the last day of the seventeenth Lease Year, upon the same terms and conditions as contained in this Lease (unless changed or modified by mutual agreement) except that (i) the fixed annual rental rate, without electricity (but subject to increase pursuant to Section 27.04 and to escalation additional rents pursuant to Article 46 hereof), for the extended term shall be a sum equal to the fair and reasonable annual market rental value of the demised premises as of the first day of the thirteenth Lease Year, taking into account the rentals at which leases are being concluded for comparable space in the Building and in comparable buildings in the same rental area as the Building; (ii) for the extended term, the terms "base year" for operating expense escalation and "base tax year" for real estate tax escalation, under Article 46, each shall be deemed to mean the calendar year during which the first day of the thirteenth Lease Year occurs (so that taxes for the base tax year will be the average of the taxes payable for two (2) different tax years), the "comparative year(s)" under Article 46 shall be unchanged; and (iii) this Lease, as extended, shall not contain the renewal option provided in this Article or the rent credit or work contribution set forth in Article 45. The exercise of such option shall only be effective upon, and in strict compliance with, the following terms and conditions: 1. Written notice of such election shall be given by Tenant to Landlord not later than twelve (12) months prior to the expiration date of the initial term (the "Initial Term") of this Lease. Time shall be of the essence in connection with the exercise of any election of Tenant hereunder. 2. The fair and reasonable annual market rental value of the demised premises effective as of the commencement of the extended term shall take into account, also, the five (5) year term of the extension, and it shall be determined, as aforesaid, during the last nine (9) months of the Initial Term. Landlord and Tenant shall seek to agree as to the amount of such fair and reasonable annual market rental value for the demised premises. If they shall not agree as to such value by the start of the last eight (8) months of the Initial Term, then and in such event said fair and reasonable annual market rental value shall be determined by appraisal as hereinafter in this Article provided. -86- Notwithstanding the foregoing, and any appraisal as hereinafter provided, the parties understand and agree that in no event shall the fixed annual rental rate (without electricity) for the extended term be less than the aggregate of the fixed annual rental rate (without electricity) payable as of the last month of the Initial Term, plus the sum of the operating expense escalation and real estate tax escalation additional tents payable under Article 46 for the last twelve (12) months of the Initial Term. If at the commencement date of the extended term, the amount of the fixed annual rental rate payable during said term in accordance with the foregoing paragraphs of this Article shall not have been determined, then, pending such determination, Tenant shall pay fixed annual rent at a rate equal to 120% of the fixed annual rental rate payable hereunder as of the last month of the initial term of this Lease (the "Temporary Rate"). After the determination by appraisal of the fair and reasonable annual market rental value of the demised premises, if the fixed annual rental rate payable pursuant to this Article is greater than the Temporary Rate, Tenant shall promptly pay to Landlord the difference between the rent theretofore paid at the Temporary Rate and the greater rental rate determined after the appraisal; and the greater fixed annual rental rate so determined after the appraisal shall be payable during the extended term; if said rental rate is lower than the Temporary Rate, Landlord shall promptly remit any overpayment made by Tenant; and the fixed annual rental rate so determined hereunder shall be payable during the extended term. 3. Upon determination of the fixed annual rent, for the extended term, Landlord and Tenant shall execute, acknowledge and deliver to each other an agreement specifying the amount of the fixed annual rental rate for such extended term (but any failure to execute such an agreement shall not affect Tenant's obligation to pay and Landlord's right to receive such fixed annual rent). 4. Tenant shall not be in default under any of the material terms, covenants and conditions of this Lease beyond any grace period hereunder (i) at the time Tenant gives written notice to Landlord of its election to extend the term of this Lease; or (ii) at the commencement date of the extended term. 5. If Landlord and Tenant shall be unable to agree as to the fair and reasonable annual market rental rate by the date hereinabove set forth, then and in such event said fair and reasonable annual market rental value for the demised premises shall be determined as follows: Either party shall give a notice to the other, stating the name and address of an impartial person to act as appraiser hereunder, and within thirty (30) days after the receipt of such -87- notice, the other party shall give notice to the sender of the first- mentioned notice, likewise, stating the name and address of an impartial person to act as appraiser hereunder. The appraisers so specified in such notices shall be licensed real estate brokers doing business in the Borough of Manhattan, City and State of New York (including such brokers who specialize in acting as such brokers to tenants), each having not less than twenty (20) years active experience as real estate brokers in said Borough. In making their determinations, the appraisers shall consider and follow the directions set forth in this Article. Before proceeding to determine the fair and reasonable annual market rental value of the demised premises ("the value"), as aforedescribed, the appraisers so appointed shall subscribe and swear to an oath fairly and impartially to determine such value. If, within thirty (30) days following the appointment of the latter of said appraisers, said two appraisers shall be unable to agree upon the said value, the said appraisers shall appoint, by an instrument in writing, as third appraiser, an impartial person, similarly qualified, who upon taking a similar oath, shall proceed with the two appraisers first appointed to determine the said value. The written decision of any two of the appraisers so appointed, fixing such value, shall be binding and conclusive on the parties. If, within forty-five (45) days following the appointment of the third appraiser, any two of the appraisers have not by written decision fixed such value then the third appraiser shall find as correct the value that was determined by either the appraiser specified by Landlord or the appraiser specified by Tenant and render a written decision fixing such value as the fair and reasonable annual market rental value for the demised premises, which written decision shall be binding and conclusive on the parties. If, after notice of the appointment of an appraiser, the other party shall fail, within the above specified period of thirty (30) days, to appoint an appraiser, such appointment of a similarly qualified appraiser may be made, upon application without notice by the person who shall have been appointed an appraiser, by the American Arbitration Association in New York City, (or if the American Arbitration Association in New York City will not so act, then such appointment shall be made by the Justice of the Supreme Court, New York County, then presiding in Special Term, Part II thereof, or the equivalent of said Part II). If the two appraisers aforesaid shall be unable to agree, within thirty (30) days following the appointment of the latter of said appraisers, upon such value and shall fail to appoint in writing a third appraiser within fifteen (15) days thereafter, the necessary -88- appraiser shall be appointed by said American Arbitration Association in New York City (or by said Justice). If any appraiser appointed as aforesaid by either of the parties, by said American Arbitration Association, by said Justice, or by the two appraisers so appointed, shall die, be disqualified or incapacitated or shall fail or refuse to act, before such value shall have been determined, the necessary appraiser shall be promptly appointed by the person or persons who appointed the appraiser who shall have died, become disqualified or incapacitated, or who shall have failed or refused to act, as aforesaid. Landlord and Tenant shall each pay the fees of the person acting as appraiser hereunder for Landlord and Tenant, respectively, and Landlord and Tenant shall each pay one-half (1/2) of the fees of any third appraiser appointed pursuant to the provisions of the preceding paragraph - 89 - Article 50 Expansion Space If, at any time during the initial term only (and not during any renewal term) of this Lease, Tenant notifies Landlord that Tenant needs and wants additional expansion space, and such space of up to 15,000 rentable square feet on any floor in the same elevator bank as the premises originally demised hereunder is then vacant and available for leasing by Landlord (i.e., not currently under offer to a proposed tenant or subject to the option of another tenant; and subject to the right of any existing tenant to renew and extend its occupancy of such space), then, provided Tenant is not then in default beyond any grace period under any of the material terms, covenants or conditions of this Lease, Tenant shall have the option(s) to add to the premises demised hereunder all but not part of such space (hereinafter call the "Expansion Space(s)"), but only upon strict compliance with the terms and conditions set forth herein. Tenant shall give Landlord written notice by certified or registered mail, return receipt requested, of its election so to add all but not part of the Expansion Space(s) to the demised premises, which notice shall be given no later than ten (10) days after written notice from Landlord of the availability of such Expansion Space. Time shall be of the essence in connection with the exercise by Tenant of any option hereunder. The term of the leasing of such Expansion Space(s) shall commence on the first day of the month following the month in which Tenant exercises the within option, and shall end on the expiration or sooner termination date of the initial term of this Lease, or, if the Tenant exercises its renewal option as in Article 49 provided, the expiration or sooner termination date of the renewal term, but in no event shall the commencement date of the term of the leasing of any Expansion Space be later than the last day of the seventh Lease Year, so that the term of the leasing of any Expansion Space shall in no event be less than five (5) years. For the Expansion Space(s), the fixed annual rental rate (without electricity) shall be a sum equal to the then fair and reasonable annual market rental value of the Expansion Space(s), taking into account the rentals at which leases are being concluded for comparable space in the Building and in comparable buildings in the same rental area as the Building. In the event Tenant exercises the within option, Landlord and Tenant shall promptly seek to agree as to the amount -90- of such fair and reasonable annual market rental value for the Expansion Space(s). If they shall not agree as to such value within thirty (30) days after the exercise of such option, then and in such event said fair and reasonable annual market rental value shall be determined in accordance with he provisions of paragraph 5 of Article 49 (Renewal Option). Notwithstanding the foregoing, and any appraisal as in Article 49 provided, the parties understand and agree that in no event shall the fixed annual rental rate (without electricity) for the Expansion Space(s) be less than the aggregate of the fixed annual rental rate (without electricity) payable for the within demised premises (proportionately adjusted for the size of the Expansion Space(s)) as of the month during which Tenant exercises the within option(s) (the "Option Month"), plus the sum of the operating expense escalation and real estate tax escalation additional rents payable for the within demised premises (proportionately adjusted for the size of the Option Space(s)) under Article 45 for the twelve (12) month period ending with such Option Month. If at the commencement date of the term of the leasing of the Expansion Space(s), the amount of the fixed annual rental rate payable during said term in accordance with the foregoing paragraphs of this Article shall not have been determined, then, pending such determination, Tenant shall pay fixed annual rent for the Expansion Space(s) at a rate equal 120% of the fixed annual rental rate payable for the within demised premises (proportionately adjusted for the size of the Expansion Space(s)) as of the Option Month (the "Temporary Option Rate"). After the determination by appraisal of the fair and reasonable annual market rental value of the Expansion Space(s), if the fixed annual rental rate payable pursuant to this Article is greater than the Temporary Option Rate, Tenant shall promptly pay to Landlord the difference between the rent theretofore paid at the Temporary Option Rate and the greater rental rate determined after the appraisal; and the greater fixed annual rate so determined after the appraisal shall be payable with respect to the Expansion Space; if said rental rate is lower than the Temporary Option Rate, Landlord shall promptly remit any overpayment made by Tenant; and the fixed annual rental rate so determined hereunder shall be payable with respect to the Expansion Space. Tenant agrees to accept the Expansion Space(s) in its then "as is" condition, with no obligation in Landlord to do any work therein or thereto, and Landlord need not demolish or erect demising walls, to make the Expansion Space suitable and ready for Tenant's occupancy and use. The base year for expense escalation and the base tax year for tax escalation under Article 46 hereof shall be the calendar year during which the commencement date of the term of -91- the leasing of the Expansion Space occurs. "The Percentage(s)" for the Expansion Space(s) shall be determined in accordance with Article 45 and Landlord's then standard practice for measuring space in the Building. Otherwise, the Expansion Space(s) shall be added to the demised premises pursuant to all of the applicable terms, covenants and conditions of this Lease, including, without limitation, an ERIF computed in accordance with the provisions of Section 27.04 -92- Article 51 Miscellaneous A. Supplementing Section 5.01 hereof, Tenant agrees that it shall be responsible for compliance with all New York City and State and Federal disability laws, rules and regulations with respect to the entire demised premises. B. Landlord represents that the demised premises are presently in compliance with all applicable Environmental Laws (as hereinafter defined) affecting the demised premises. For purposes of this Lease, the term "Environmental Laws" shall mean all applicable statutes, approvals, plans, authorizations, concessions, franchises, agreements and similar items, of or with any and all governmental agencies, departments, commissions, boards, bureaus or instrumentalities of the United States of America, states and political subdivisions thereof and all applicable judicial and administrative and regulatory decrees, judgments and orders relating to the protection of human health or the environment, including, without limitation, (i) all requirements, including, but not limited to, those pertaining to reporting, licensing, permitting, investigation and remediation of emissions, discharges, releases or threatened releases of hazardous materials, chemicals, hazardous substances, toxic substances, or hazardous wastes, including, but not limited to, asbestos and PCBs (collectively, "Hazardous Materials"), into the air, surface water, groundwater or land, or relating to the manufacture, distribution, processing, use, treatment, storage, disposal, transport or handling of Hazardous Materials; and (ii) all requirements pertaining to the protection of the health and safety of employees or the public. C. Landlord represents that the Building is presently in compliance with New York City Local Law 5. D. Supplementing Section 27.01, Tenant may use the freight elevators in the Building, on a nonexclusive basis, during such elevators' normal hours of operation, without any charge to Tenant but subject to Landlord's rules and regulations regarding such use, as same may be modified and amended from time to time. Tenant may also use such freight elevators, on a nonexclusive basis, outside of such normal hours of operation, provided that Tenant shall first schedule an appointment with the Building management office for such use; and provided, further, that Tenant shall pay Landlord in accordance with Landlord's then existing rate schedule for such after-hours use of the freight elevators, which rate schedule shall be subject to increase (proportionate to Landlord's increase in costs for providing such service) from time to time during the term of this Lease; but in no event shall -93- Tenant be charged a rate which is in excess of the then Building rate charged for such service. Any such use of the freight elevators outside of their normal hours of operation shall also be subject to Landlord's rules and regulations regarding such use, as same may be modified and amended from time to time. E. Supplementing Section 27.03 hereof, Tenant may install, maintain and operate, at Tenant's sole cost and expense, a supplemental air-conditioning unit(s) in and for the demised premises, which installation shall be made in one of the notch areas of the Building (in a location designated by Landlord), and otherwise in accordance with plans and specifications first approved by Landlord and in compliance with all applicable provisions of this Lease regarding alterations and installations. The number of such supplemental units shall also be subject to Landlord's prior approval. Upon the expiration or sooner termination of the term of this Lease, Tenant, at its sole cost and expense, and unless Landlord elects otherwise in writing, shall remove any such supplemental unit from the demised premises, as the case may be, and shall repair any damage caused by such removal. Tenant agrees that all charges for the electricity consumed by the operation of such supplemental unit(s) shall be computed in accordance with the provisions of Section 27.04 hereof. F. Supplementing Article 40 hereof, Landlord represents and warrants that it neither consulted nor negotiated with any broker or finder with regard to the demised premises other than Helmsley-Spear, Inc. and The Galbreath Company, L.P. Landlord agrees to indemnify and save Tenant harmless from and against any claims for fees or commissions from anyone other than Helmsley-Spear, Inc. and The Galbreath Company, L.P. with whom Landlord has dealt in connection with the demised premises or this Lease. G. Landlord shall provide Tenant with access to the demised premises on a 24 hour basis, 7 days a week, 365 days a year, subject to emergencies and requirements of law. H. Landlord represents that Landlord is currently in the process of renovating the lobby of the Building. As part of such lobby renovation, Landlord intends to install a computer operated directory of the tenants in the Building. Landlord agrees that, at no charge to Tenant, Landlord shall provide Tenant with up to 25 listings on any such computer operated tenant directory installed in the lobby of the Building by Landlord. I. Supplementing Section 27.12 of this Lease, Landlord represents that it is currently the policy of the Building that the cleaning services for lavatories in the core, as set forth in -94- Exhibit C hereto, are not provided, without charge, to tenants occupying a full floor. Accordingly, Tenant agrees that, upon the execution and delivery of this Lease, it shall enter into a service contract directly with the cleaning contractor for the Building for the furnishing to such lavatories of the applicable cleaning, maintenance and supplies described in said Exhibit C. Landlord agrees that the rates in such service contract shall not exceed the reasonable and customary charges for such services, and that Tenant shall be entitled to a rent credit in the amount of 50% of all charges paid by Tenant under said contract (except for additional items not described in said Exhibit C). Such rent credit shall be applied, until fully depleted, to the first rents and additional rents due under this Lease after such charges have been paid by Tenant- Tenant shall promptly pay when due all sums which are due and payable under said service contract, and shall provide Landlord with paid invoices for all such charges. J. Supplementing Section 27.12 of this Lease, Landlord agrees that, in connection with Tenant's move into the Building, Tenant shall not be charged for the removal from the demised premises of any cardboard boxes and other packing materials customarily used by a normal office tenant for moving into a Building, provided such boxes and packing materials are broken down and neatly stacked by Tenant. K. In the event of any inconsistency between the provisions of this Rider and the provisions of the printed form of this Lease, the provisions of this Rider shall prevail. L. Tenant shall have the option to occupy, on a temporary basis, Room 2434, consisting of 8,563 rentable square feet on the 24th floor of the Building (the "Temporary Space"). Tenant may exercise such option by notifying Landlord thereof at any time prior to the date which is thirty (30) days after the date of this Lease. The term of such temporary occupancy shall commence on date Landlord receives such notice and shall end (unless it shall sooner terminate as in this Lease provided) on the date (the "Temporary Space Expiration Date") which shall be the earlier to occur of (i) the Rent Commencement Date or (ii) the effective date of any cancellation of this Lease by Tenant under Subdivision C of Article 45; provided, however, that Tenant shall have the right to terminate the term of its occupancy of the Temporary Space upon three (3) days' prior notice to Landlord. Tenant agrees to take possession of the Temporary Space in its "as is" condition with no obligation in Landlord to do any work therein or thereto to make such space suitable and ready for Tenant's occupancy and use. Tenant shall surrender broom-clean possession to Landlord of the Temporary Space on or before the Temporary Space Expiration Date (or such sooner date that Tenant cancels its occupancy of the Temporary Space, as above provided). For the Temporary Space, Tenant shall not be required to pay any fixed annual rent or escalation additional rent, but Tenant shall be required to pay an -95- ERIF at the rate of $3.00 per rentable square foot per annum, under Section 27.04, for electricity. Otherwise, Tenant's occupancy and use of the Temporary Space shall be pursuant to all of the applicable provisions of this Lease. In the event that Tenant shall fail timely to vacate and surrender the Temporary Space, then Tenant shall pay to Landlord, as liquidated damages, for each day during which Tenant continues to occupy the Temporary Space after the Temporary Space Expiration Date (or such sooner date that Tenant cancels the term of its occupancy of the Temporary Space, as above provided), $587, it being agreed that the damage to Landlord resulting from the failure by Tenant to timely vacate and surrender the Temporary Space will be substantial and will be impossible of accurate measurement. M. Landlord agrees that, at Tenant's request within a reasonable period of time after the date of this Lease, Landlord will enter into a license with Tenant for the use of a portion of the roof of the building, to be designated by Landlord, for the installation, maintenance and operation of up to nine (9) VSAT satellite dish antennas, each with radius of not more than three and one-half (3 1/2) feet. Such license shall include the right to install the necessary wiring and conduit between the demised Premises and such antennas. Such license shall be on Landlord's then standard form of antenna license agreement for the Building, at the reasonable and customary license fees then being charged by this Landlord and similar landlords for such antenna installation and use of the roof of the Building. Tenant shall be responsible for complying with all applicable laws, rules and regulations relating to such antenna installation and use. The installation of all antennas permitted hereunder shall be effected as part of Tenant's Initial Alteration work under this Lease and Tenant shall be responsible for all costs and expenses relating to the maintenance and use of such antennas. -96- Article 52 Security Deposit/Letter of Credit A. Supplementing Article 39 of this Lease, if and so long as Tenant is not in default under any of the material terms, covenants or conditions of this Lease, beyond any grace period, the amount of the security deposit required under Article 39 of this Lease shall be reduced from $180,128 to $90,064 on the last day of the fourth Lease Year. B. Anything hereinabove to the contrary notwithstanding, and supplementing Article 39 hereof, Tenant, instead of depositing cash with Landlord as security deposit hereunder, may elect to substitute therefor and deliver to Landlord, as and for a security deposit, an unconditional, irrevocable commercial Letter of Credit, negotiable (hereinafter called .'the Credit"), to be held and used under the security deposit provisions of this Lease, which Credit shall be issued by a bank (i) which is a member of the New York Clearing House Association or a successor thereto or (ii) which is reasonably acceptable to Landlord, in the amount of $180,128 (which may be reduced as in Subdivision A above provided), naming Landlord (or its successor as Landlord) as beneficiary and authorizing the beneficiary to draw on the bank in said amount, or any portion thereof, available by the beneficiary's sight draft, without presentation of any other documents, statements or authorizations. The Credit shall have a term of at least twelve (12) months, and it shall by its terms be renewed, automatically, each year, by the bank, unless the bank gives written notice to the beneficiary, at least forty-five (45) days prior to the expiration date of the then existing Credit that the bank elects that it not be renewed The Credit shall be transferable. Tenant agrees that it shall pay to Landlord any transfer fees imposed by the bank. The bank shall further agree with drawers, endorsers, and all bona fide holders that drafts drawn under and in compliance with the terms of the Credit will be duly honored upon presentation to the bank at an office located in Manhattan The Credit shall be subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision} International Chamber of Commerce Publication No. 500. If during the term of this Lease the Credit and/or the proceeds of all or part of said Credit become less than the full amount of the security deposit hereinabove required, then and in such event Tenant shall, upon demand, deposit with Landlord the amount of any security deposit/credit theretofore used or applied by Landlord pursuant to the terms hereof in order that Landlord shall have the full security deposit on hand at all times during the term of this Lease. If at the expiration of the term of this Lease, Landlord holds all or part of said Credit, and Tenant is not in default beyond any applicable notice and/or grace period -97- under any of the material terms, covenants and conditions of this Lease, then Landlord will turn over said Credit to Tenant or assign it to the designee of Tenant (except, however, that, before turning over the Credit, Landlord may draw on it and retain such amount as Landlord reasonably deems necessary to satisfy any then existing default under any nonmaterial provision of this Lease). It shall be the obligation of Tenant during the term of this Lease to deliver to Landlord at least thirty (30) days prior to the expiration date of the then existing Credit, a renewal or extension of said Credit or a substitute Credit (each fully complying with the foregoing). If for any reason Landlord has not received such renewal or extension or substitute Credit within twenty (20) days prior to the expiration date of the then existing Credit, then and in such event Landlord shall be free to draw on the Credit and hold and use and apply the proceeds thereof in accordance with the security deposit provisions of this Lease. In the event Landlord so draws upon the Credit it shall be entitled to reimbursement for any reasonable attorneys' fees incurred in connection therewith. LEASE MODIFICATION AGREEMENT AGREEMENT, made as of this 17th day of June, 1996 between MID-CITY ASSOCIATES, a New York general partnership with an office at 60 East 42nd Street, New York, New York 10165 (hereinafter called "Landlord"), and FIRST ALBANY COMPANIES INC., a New York corporation with an office at 30 South Pearl Street, Albany, New York 12207 (hereinafter called "Tenant") W I T N E S S E T H: WHEREAS, Landlord is the landlord and Tenant is the tenant under that certain lease, dated as of March 21, 1996, covering the entire rentable area of the 42nd floor (the "42nd Floor Space") of the building ("the 'Building") known as One Penn Plaza, New York, New York (which lease, as same may have been modified through the date hereof, is hereinafter called the "Lease") ; and WHEREAS, the parties wish to modify the Lease so as to add to the premises demised thereunder approximately 19,826 rentable square feet of space on the 41st floor of the Building, approximately as shown on the space diagram annexed hereto as Exhibit A and made a part hereof (the "41st Floor Space"), in accordance with the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree that the Lease be, and the Lease hereby is, modified as follows: 1. The 41st Floor Space is hereby added to the demised premises for a term commencing as provided in Article 45A of the Lease and ending on the last day of the twelfth Lease Year of the Lease (unless said term is sooner terminated as in the Lease provided). Tenant shall receive a rent credit of $803.90 a day for each day beyond the Commencement Date of the leasing of the 42nd Floor Space during which Landlord has not yet made available to Tenant possession of the 41st Floor Space. 2. The 41st Floor Space is leased pursuant to all of the applicable terms, covenants and conditions of the Lease, including the same Lease Years as for the 42nd Floor Space, except as modified herein and except as hereinafter provided. 3. For the 41st Floor Space: (a) The fixed annual rental rates (without electricity, and subject to increase by the Escalated Amount as in Article 46B on page 68 of the Lease defined and described) shall be as follows: $293,425 a year for the first Lease Year; $440,335 a year for the second Lease Year; $557,705 a year for the third Lease Year; $594,780 a year for each of the fourth and fifth Lease Years; $614,606 a year for each of the sixth, seventh, eighth and ninth Lease Years; and $634,432 a year for each of the tenth, eleventh and twelfth Lease Years. Accordingly, for the combined 42nd Floor Space and 41st Floor Space, the fixed annual rental rates (without -2- electricity, and subject to increase by the Escalated Amount as in Article 46B on page 68 of the Lease defined and described) shall be as follows: $793,425 a year for first Lease Year; $1,190,335 a year for the second Lease Year; $1,507,705 a year for the third Lease Year; $1,608,000 a year for each of the fourth and fifth Lease Years; $1,661,600 a year for each of the sixth, seventh, eighth and ninth Lease Years; and $1,715,200 a year for each of the tenth, eleventh, and twelfth Lease Years. (b) (i) The Percentage shall mean .9568% for real estate tax escalation which, when added to The Percentage for the 42nd Floor Space, becomes a total of 2.5868% for the combined 42nd Floor Space and 41st Floor Space. (ii) The Percentage shall mean 1.028% for expense escalation which, when added to The Percentage for the 42nd Floor Space, becomes a total of 2.779% for the combined 42nd Floor Space and 41st Floor Space. (c) Supplementing Article 45F and 45G of the Lease, Landlord will reimburse Tenant for up to the first $396,520 of the costs of labor and materials for Tenant's Initial Alteration Work as on page 71 of the Lease described and provided, so that Landlord's total reimbursement to Tenant, subject to the provisions of Article 4SF and 45G, in connection with its Initial Alteration Work, shall be $1,747,480. -3- Notwithstanding anything to the contrary contained in said Articles 45F and 45G, if such costs are lower than $1,747,480, then Tenant shall be entitled to an additional rent credit in an amount equal to the difference between such costs and $1,747,480, which rent credit shall be applied, until fully depleted, against the first fixed annual rent (without electricity) due under the Lease (as modified hereby), subject to the application of the rent credits described in Subdivision (d) of this Paragraph 3 and Article 45H of the Lease. Any such costs in excess of $1,747,480 shall be paid promptly by Tenant. (d) Supplementing Article 45H of the Lease, for the 41st Floor Space Tenant shall be entitled to the following rent credits if and so long as Tenant is not then in default under any of the material terms, covenants or conditions of the Lease beyond any grace period: (i) a credit in the amount of $19,516, to be applied against the second month's rent due under the Lease, and (ii) a credit in the amount of $396,520, to be applied in equal installments of $24,782.50 per month against the 3rd through the 18th month's rent due under the Lease. (e) Supplementing Articles 39 and 52 of the Lease, Tenant shall deposit with Landlord an additional security deposit (or letter of credit) in the amount of $105,738.66, which when added to the security deposit (or letter of credit) for the 42nd Floor Space, shall make for a total of $285,866.66. Said amount, if and so long as Tenant is not then in default under any of the material terms, covenants or conditions of the Lease beyond any -4- grace period, shall be reduced from $285,866.66 to $142,933.33 on the last day of the fourth Lease Year. 4. The following language shall be deemed to be and hereby is substituted in place and instead of the language of the third paragraph on page 80B through page 80C of the Lease: "For purposes of this cap or limitation on escalation additional rents, the "Expense Factor" shall mean an amount equal to (x) The Percentage for expense escalation (2.779%) multiplied by (y) the Expenses for the base year; and The "Tax Factor" shall mean an amount equal to (x) The Percentage for real estate tax escalation (2.5868%) multiplied by (y) the real estate taxes payable for the base tax year. The following illustrates the manner in which the above is intended to operate: For example only: If the Expenses for the base year are $13,500,000 and the real estate taxes payable for the base tax year are $12,500,000, then the Expense Factor would be: 2.779% x $13,500,000 or $375,165 and the Tax Factor would be: 2.5868% x $12,500,000 or $323,350 accordingly, the total of Expense Payment and real estate tax escalation additional rent payable hereunder for the 1998 comparative year shall not be more than an amount equal to: 10% x ($375,165 + $323,350) or $69,851.50 the total Expense Payment and real estate tax escalation additional rent payable hereunder for the 1999 comparative year shall not be more than an amount equal to: 20% x ($375,165 + $323,350) or $139,703 -5- It is understood and agreed that there shall be no limitation or so-called cap on any increase in the amount of real estate tax or operation expense escalation additional rent due hereunder for the comparative year 2000 or for any comparative year thereafter during the term of this Lease." 5. Subdivision (b) of Article 45E on page 70 of the Lease (as to removal of internal stairway) shall be deemed to be and hereby is deleted from the Lease. Tenant has advised it will keep and use said internal stairway. Landlord confirms that Tenant's removal obligations under Article 47A(i) on page 82 of the Lease shall not include the existing internal stairway between the 42nd Floor Space and the 41st Floor Space. 6. The provisions of the cleaning schedule on page 65 of the Lease and Article 51I on page 94 of the Lease are hereby clarified so as to confirm that Landlord's cleaning obligation, without charge, applies to the public lavatories on the 41st floor and not to any lavatory within the demised premises on a multi-tenanted floor such as the 41st floor. Such cleaning obligation of Landlord shall include supplying the public lavatories on the 41st floor with Building standard quantities of Building standard soap, toilet paper and paper hand towels. 7. The words "the expense" shall be deemed added to the language in Article 46 (a) (v) in the margin at the bottom of page 73 of the Lease, so that it reads " (v) the term "comparative year" for tax escalation and the expense escalation "comparative year" shall mean..., etc.". -6- 8. The parties confirm and agree that the provisions of Article 51F on page 93 of the Lease, respecting the Galbreath Company, L.P. and Helmsley-Spear, Inc. are and shall be applicable to the leasing hereunder of the 41st Floor Space. 9. In Article 50 on page 89 of the Lease, the word "originally" shall be deemed to be and hereby is deleted from the fifth line thereof. 10. Article 45E(a) on page 70 of the Lease shall be deemed to be and hereby is modified so that Landlord, in connection with Tenant's Initial Alteration Work, in addition to described obligations as to asbestos, shall also, at Landlord's expense for the 41st Floor Space, erect a demising wall and create a public corridor. 11. Supplementing Subdivision D of Article 45 of the Lease, Tenant agrees that, as part of its Initial Alteration Work, it shall effect all work necessary (i) to upgrade the existing common area bathrooms on the 41st Floor so that they shall be equal to or better than Building standard for such bathrooms; and (ii) to cause the 41st Floor to comply with all requirements of the American with Disabilities Act of 1990 and New York City Local Law No. 58/87 (including any rules and regulations issued pursuant thereto) with respect to bathrooms. Such work shall be effected in accordance with the provisions of Subdivision D of Article 45 and all other applicable provisions of the Lease regarding alterations and installations, including, without limitation, Articles 3 and 47. In consideration of Tenant effecting such -7- work, Landlord agrees that Tenant shall be entitled to a rent credit in an amount equal to the 41st Floor Bathroom Credit Amount (as hereinafter defined), which rent credit shall be applied, until fully depleted, against the first fixed annual rent due under the Lease for the 41st Floor Space, from and after the application of the rent credits described in Subdivisions (d) and (c) of Paragraph B of this Agreement. For purposes of this Agreement, the "41st Floor Bathroom Credit Amount" shall mean the first $20,000 of the costs of labor and materials in effecting the work described in this Paragraph 11. Tenant agrees that it shall provide Landlord with copies of paid bills showing the cost of such work. If such bills total less than $20,000, then the 41st Floor Bathroom Credit shall be such lesser amount. 12. Except as herein modified, all of the other terms, covenants and conditions of the Lease are and shall remain in full force and effect, and are hereby ratified and confirmed. 13. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and permitted assigns. IN WITNESS WHEREOF, the parties hereto have executed this -8- Agreement as of the day and year first above written. WITNESS: (As to Landlord) MID CITY ASSOCIATES By: Helmsley Spear, Inc., Agent /s/ Jerome D. Cirillo By: /s/Daniel E. Nerta - --------------------- ----------------------- WITNESS: (As to Tenant) FIRST ALBANY COMPANIES INC. /s/ Katherine R. Shaw By: /s/ Edwin T. Brondo - --------------------- ----------------------- SECOND LEASE MODIFICATION AGREEMENT AGREEMENT, made as of this 12th day of July 1996, between MID-CITY ASSOCIATES, a New York general partnership with an office at 60 East 42nd Street, New York, New York 10165 (hereinafter called "Landlords"), and FIRST ALBANY COMPANIES INC., a New York corporation with an office at 30 South Pearl Street, Albany, New York 12207 (hereinafter called "Tenant"). WITNESSETH WHEREAS, Landlord is the landlord and Tenant is the tenant under that certain lease, dated as of March 21, 1996, covering the entire rentable area of the 42nd floor (the "42nd Floor Space) of the building (the 'tBuilding") known as One Penn Plaza, New York, New York, which lease was modified by a certain Lease Modification Agreement, dated as of June 17, 1996 (which lease, as so modified, and as same may have otherwise been modified through the date hereof, is hereinafter called the "Lease") ; and WHEREAS, approximately 19,826 rentable square feet of space on the 41st floor of the Building (the "41st Floor Space") was added to the premises demised under the Lease pursuant to said June 17, 1996 Lease Modification Agreement; and WHEREAS, the parties wish to further modify the Lease so as to add to the premises demised thereunder approximately 8,079 rentable square feet of space on the 40th floor of the Building, approximately as shown on the space diagram annexed hereto as Exhibit A and made a part hereof (the "40th Floor Space"), in accordance with the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree that the Lease be, and the Lease hereby is, modified as follows: 1. The 40th Floor Space is hereby added to the demised premises for a term commencing as provided in Article 45A of the Lease and ending on the last day of the twelfth Lease Year of the Lease (unless said term is sooner terminated as in the Lease provided). -1- 2. The 40th Floor space is leased pursuant to all of the applicable terms, covenants of the Lease, including the same Lease Years as for the 41st and 42nd Floor Space, except as modified herein and except as hereinafter provided: 3. For the 40th Floor Space: (a) The fixed annual rental rates (without electricity, and subject to increase by the Escalated Amount as in Article 46B on page 68 of the Lease defined and described) shall be as follows: $179,760 a year for each of the first and second Lease Years; $220,800 a year for the third Lease Year; $242,370 a year for each of the fourth and fifth Lease Years; $250,449 a year for each of the sixth, seventh, eighth and ninth Lease Years; and $258,528 a year for each of the tenth, eleventh and twelfth Lease Years. Accordingly, for the combined 40th Floor Space, 41st Floor Space and 42nd Floor Space, the fixed annual rental rates (without electricity, and subject to increase by the Escalated Amount as in Article 46B on page 68 of the Lease defined and described) shall be as follows: $973,185 a year for first Lease Year; $1,370,095 a year for the second Lease Year; $1,728,505 a year for the third Lease Year; $1,850,370 a year for each of the fourth and fifth Lease Years; $1,912,049 a year for each of the sixth, seventh, eighth and ninth Lease Years; and $1,973,728 a year for each of the tenth, eleventh, and twelfth Lease Years. (b) (i) The Percentage shall mean .3899% for real estate tax escalation which, when added to The Percentage for the 41st Floor Space and 42nd Floor Space, becomes a total of 2.9767% for the combined 40th Floor Space, 41st Floor Space and 42nd Floor Space. (ii) The Percentage shall mean .4189% for expense escalation which, when added to The Percentage for the 41st Floor Space and 42nd Floor Space, becomes a total of 3.1979% for the combined 40th Floor Space, 41st Floor Space and 42nd Floor Space. -2- (c) Supplementing Article 45F and 45G of the Lease, Landlord will reimburse Tenant for up to the first $43,788 of the costs of labor and materials for Tenant's Initial Alteration Work as on page 71 of the Lease described and provided, so that Landlord's total reimbursement to Tenant, subject to the provisions of Article 4SF and 45G, in connection with its Initial Alteration Work, shall be $1,791,268. Notwithstanding anything to the contrary contained in said Articles 45F and 45G, if such costs are lower than $1,791,268, then Tenant shall be entitled to an additional rent credit in an amount equal to the difference between such costs and $1,791,268, which rent credit shall be applied, until fully depleted, against the first fixed annual rent (without electricity) due under the Lease (as modified hereby), subject to the application of the rent credits described in subdivision (d) of this Paragraph 3 and Article 45H of the Lease. Any such costs in excess of $1,791,268 shall be paid promptly by Tenant. (d) Supplementing Article 45H of the Lease, for the 40th Floor Space Tenant shall be entitled to the following rent credits if and so long as Tenant is not then in default under any of the material terms, covenants or conditions of the Lease beyond any grace period: (i) a credit in the amount of $299,600, to be applied in equal installments of $14,980 per month against the 1st through the 20th month's rent due under the Lease; and (ii) a rent credit in the amount of $8,269.45, to be applied against the 20th month's rent due under the Lease. (e) Supplementing Articles 39 and 52 of the Lease, Tenant Shall deposit with Landlord an additional security deposit (or letter of credit) in the amount of $43,088, which when added to the security deposit (or letter of credit) for the 41st Floor Space and 42nd Floor Space, shall make for a total of $328,954.66. Said amount, if and so long as Tenant is not then in default under any of the material terms, covenants or conditions of the Lease beyond any grace period, shall be reduced from $328,954.66 to $164,477.33 on the last day of the fourth Lease Year. 4. The following language shall be deemed to be and hereby is substituted in place and instead of the language of the third paragraph on page 80B through page 80C of the Lease: "For purposes of this cap or limitation on escalation additional rents, the "Expense Factor" shall mean an amount equal to (x) The Percentage for expense escalation (3.1979%) multiplied by (y) the expenses for the base year; and The "Tax Factor" shall -3- mean an amount equal to (x) The Percentage for real estate tax escalation (2.9767%) multiplied by (y) the real estate taxes payable for the base tax year. The following illustrates the manner in which the above is intended to operate: For example only: If the Expenses for the base year are $13,500,000 and the real estate taxes payable for the base tax year are $12,500,000, then the Expense Factor would be: 3.1979% x $13,500,000 or $431,716.50 and the Tax Factor would be: 2.9767% x $12,500,000 or $372,087.50 accordingly, the total of Expense Payment and real estate tax escalation additional rent payable hereunder for the 1998 comparative year shall not be more than an amount equal to: 10% x ($431,716.50 + $372,087.50) or $80,380.40 the total Expense Payment and real estate tax escalation additional rent payable hereunder for the 1999 comparative year shall not be more than an amount equal to: 20% x ($431,716.50 + $372,087.50) or $160,760.80 It in understood and agreed that there shall be no limitation or so-called cap on any increase in the amount of real estate tax or operation expense escalation additional rent due hereunder for the comparative year 2000 or for any comparative year thereafter during the term of this Lease. 5. Tenant has advised it will keep and use the existing internal stairway between the 40th Floor Space and the 41st Floor Space. Landlord confirms that Tenant's removal obligations under Article 47A(i) on page 82 of the Lease shall not include said internal stairway. - 4 - 6. The provisions of the cleaning schedule on page 65 of the Lease and Article 51I on page 94 of the Lease are hereby clarified so as to confirm that Landlord's cleaning obligation, without charge, applies to the public lavatories on the 40th floor and not to any lavatory within the demised premises on a multi-tenanted floor such as the 40th floor. Such cleaning obligation of Landlord shall include supplying the public lavatories on the 40th floor with Building standard quantities of Building standard soap, toilet paper and paper hand towels. 7. The parties confirm and agree that the provisions of Article 51F on page 93 of the Lease, respecting the Galbreath Company, L.P. and Helmsley- Spear, Inc., are and shall be applicable to the leasing hereunder of the 40th Floor Space. 8. Article 45E(a) on page 70 of the Lease shall be deemed to be and hereby is modified so that Landlord, in connection with Tenant's Initial Alteration Work, in addition to described obligations as to asbestos, shall also, at landlord's expense, for the 40th Floor Space, erect a demising wall and create a public corridor. 9. Except as herein modified, all of the other terms, covenants and conditions of the Lease are and shall remain in full force and effect, and are hereby ratified and confirmed. 10. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and permitted designs. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. WITNESS: (As to Landlord) MID CITY ASSOCIATES By: Helmsley Spear, Inc., Agent /s/ Jerome D. Cirillo By: /s/Daniel E. Nerta - --------------------- ----------------------- WITNESS: (As to Tenant) FIRST ALBANY COMPANIES INC. /s/ Katherine R. Shaw By: /s/ Edwin T. Brondo - --------------------- ----------------------- -5- EX-11 7 EXHIBIT 11 FIRST ALBANY COMPANIES INC. AND SUBSIDIARIES Computation of Per Share Earnings * (In thousands, except per share amounts) (unaudited) Three Months Ended December 31, December 31, September 29, September 30, 1996 1995 1995 1994 - -------------------------------------------------------------------------------- Primary: Net income $5,500 $1,553 $3,350 $4,492 ================================================================================ Weighted average number of shares outstanding during the period 4,996 4,993 4,955 4,922 Incremental shares under stock options computed under the treasury stock method using the average market price of the issuer's stock during the period 380 344 233 235 - -------------------------------------------------------------------------------- Weighted average shares and common equivalent shares outstanding 5,376 5,337 5,188 5,157 ================================================================================ Net income per share $ 1.02 $ 0.29 $ 0.65 $ 0.87 ================================================================================ Fully diluted: Net income $5,500 $1,553 $3,350 $4,492 ================================================================================ Weighted average number of shares outstanding during the period 4,996 4,993 4,955 4,922 Incremental shares under stock options computed under the treasury stock method using the higher of the average or ending market price of the issuer's stock at the end of the period 380 412 268 235 - -------------------------------------------------------------------------------- Weighted average shares and common equivalent shares outstanding 5,376 5,405 5,223 5,157 ================================================================================ Net income per share $ 1.02 $ 0.29 $ 0.64 $ 0.87 ================================================================================
* All per share figures have been restated for all common stock dividends paid. EX-22 8 EXHIBIT 22 SUBSIDIARIES OF FIRST ALBANY COMPANIES INC. COMPANY NAME STATE OF INCORPORATION - ------------ ---------------------- FIRST ALBANY CORPORATION NEW YORK FIRST ALBANY ASSET MANAGEMENT CORPORATION NEW YORK NORTHEAST BROKERAGE SERVICES CORPORATION NEW YORK EX-24 9 EXHIBIT 24 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of First Albany Companies Inc. on Form S-8 related to the First Albany Companies Inc. Stock Bonus Plan (File No. 014140) of our report dated February 7, 1997, on our audits of the consolidated financial statements and financial statement schedule of First Albany Companies Inc. as of December 31, 1996, and the year ended September 29, 1995 and, for the year ended December 31, 1996, the three months ended December 31, 1995, and the years ended September 29, 1995, and September 30, 1994, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L. L. P. Albany, New York March 24, 1997 EX-27 10
BD YEAR DEC-31-1996 DEC-31-1996 $4,005 $138,167 $2,869 $344,904 $162,311 $12,584 $675,785 $134,712 $107,939 $0 $350,577 $10,075 $6,009 $0 $0 $54 $42,220 $675,785 $0 $32,240 $42,711 $19,558 $10,244 $26,030 $95,691 $9,092 $5,500 $0 $0 $5,500 $1.02 $1.02
-----END PRIVACY-ENHANCED MESSAGE-----