-----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, LN2fcuavMEB3KABteF6FmAok7KnwsS2HuBvvBqrUw2ocKZA/FM+iNJBKKc1trFD1 lSx5wrW/ZOvOMLh4rW02+w== 0000782842-98-000002.txt : 19980326 0000782842-98-000002.hdr.sgml : 19980326 ACCESSION NUMBER: 0000782842-98-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980325 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: SEC FILE NUMBER: 000-14140 FILM NUMBER: 98572598 BUSINESS ADDRESS: STREET 1: 30 S PEARL 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, 1997 Commission file number 014140 F I R S T A L B A N Y C O M P A N I E S I N C . (Exact name of registrant as specified in its charter) New York 22-2655804 - ------------------ ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 30 S. Pearl Street, Albany, New York 12207 - ------------------------------------ --------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (518) 447-8500 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered none none - ------------------- -------------------------- Securities registered pursuant to Section 12(g) of the Act: Common stock par value $.01 per share - -------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 13, 1998, 5,886,806 shares, par value $.01 per share, were outstanding. The aggregate market value of the shares of common stock of the Registrant held by non-affiliates (based upon the closing price of Registrant's shares as reported on the NASDAQ system on March 13, 1998, which was $14.50) was approximately $41,613,564. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission are incorporated by reference into Part III. 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 predominantly in New York and New England. These activities include securities brokerage for individual and institutional customers, and market-making and trading of corporate, government, and municipal securities. In addition, First Albany underwrites and distributes municipal and corporate securities, provides securities clearance activities for other brokerage firms, and offers financial advisory services to its customers. Another of the Company's subsidiaries is First Albany Asset Management Corporation ("FAAM"). FAAM serves as investment manager to individual and institutional customers. FAAM directs the investment of customer and mutual fund assets by making investment decisions, placing purchase and sales orders, and providing research, statistical analysis, and continuous supervision of the portfolios. Brokerage services to retail and institutional customers are provided through First Albany's salesforce of Investment Executives and Institutional Salespeople. First Albany believes that its Investment Executives and Institutional Salespeople are a key factor to the success of its business. Over the last five years, the number of full-time Investment Executives and Institutional Salespeople has grown from approximately 234 to 337, many of whom joined First Albany after previous associations with national brokerage firms. First Albany has organized its business to focus on and serve the needs and financial/capital requirements of institutions, individuals, corporations, and municipalities. As investment bankers, First Albany is positioned to advise, manage, and conduct a variety of activities as requested including under- writings, initial and secondary offerings, advisory services, mergers and acquisitions, and private placements. As a brokerage firm, First Albany offers customers a full array of investment opportunities. First Albany operates a total of 27 Retail, Institutional, and Investment Banking offices in 10 states. First Albany's executive office and largest sales office are both located in Albany, New York. The Company (formed in 1985) and First Albany (formed in 1953) are New York corporations. First Albany is a member of the New York Stock Exchange, Inc. ("NYSE"), the American Stock Exchange, Inc. ("ASE"), and the Boston Stock Exchange, Inc. ("BSE") and is registered as a broker-dealer with the Securities and Exchange Commission ("SEC"). First Albany is also a member of the National Association of Securities Dealers, Inc. ("NASD") and the Securities Investor Protection Corporation ("SIPC"), which insures customer funds and securities deposited with a broker-dealer up to $500,000 per customer, with a limitation of $100,000 on claims for cash balances. First Albany has obtained additional coverage of $24,500,000 per account from National Union, a wholly owned subsidiary of American International Group (AIG), America's largest commercial insurer. Both companies are rated A+15 (highest rating) by A.M. Best. 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, December 31,* September 29,* 1997 1996 1995 1995 (three-months) - --------------------------------------------------------------------------------------------- Amount Percent Amount Percent Amount Percent Amount Percent - --------------------------------------------------------------------------------------------- (In thousands of dollars) Securities commissions: Listed $ 22,523 1.6% $ 20,507 12.2% $ 5,128 13.7% $ 17,852 14.5% Over-the-counter 11,327 5.9 7,749 4.6 1,402 3.7 4,395 3.6 Options 2,843 1.5 1,894 1.1 382 1.0 1,240 1.0 Mutual funds 15,805 8.2 12,258 7.3 2,712 7.3 8,228 6.7 Other 489 0.3 303 0.2 15 0.1 174 0.1 - --------------------------------------------------------------------------------------------- Sub-total 52,987 27.5 42,711 25.4 9,639 25.8 31,889 25.9 Principal transactions 63,235 32.7 63,438 37.7 12,322 32.9 43,198 35.1 Investment banking 19,636 10.1 19,558 11.6 5,435 14.5 14,625 11.9 Clearing revenues 1,090 0.6 1,100 0.7 267 0.7 1,059 0.8 Fees and other 10,550 5.5 9,144 5.4 1,603 4.3 6,155 5.0 - --------------------------------------------------------------------------------------------- Total operating revenues 147,498 76.4 135,951 80.8 29,266 78.2 96,926 78.7 - --------------------------------------------------------------------------------------------- Interest income 45,474 23.6 32,240 19.2 8,138 21.8 26,173 21.3 - --------------------------------------------------------------------------------------------- Total revenues $192,972 100.0% $168,191 100.0% $ 37,404 100.0% $123,099 100.0% =============================================================================================
*In July 1996, the Company changed its fiscal year end to a calendar year end. Accordingly, results from operations for the period ending December 31, 1996 reflect a twelve-month period ("calendar year") while results for the transitional period ending December 31, 1995 reflect a three-month period. Securities Commissions - ---------------------- In executing customers' orders to buy or sell listed securities and securities in which it does not make a market, First Albany generally acts as an agent and charges a commission. Principal Transactions - ---------------------- First Albany buys and maintains inventories of municipal debt, corporate debt, and equity securities as a "market maker" for sale of those securities to other dealers and to customers. A staff of 56 traders, underwriters, and assistants manage First Albany's inventory of securities. First Albany Investment Executives work directly with these traders. As of December 31, 1997, First Albany made a market in 222 common stocks quoted on National Association of Securities Dealers Automated Quotation ("NASDAQ") and other less actively traded securities. First Albany also trades municipal bonds and taxable debt obligations, including U.S. Treasury bills, notes, and bonds; U.S. Government agency notes and bonds; bank certificates of deposit; mortgage-backed securities; and corporate obligations. Principal transactions have been a significant source of revenue and should continue to be so in the future. Continuation of these activities depends on the availability of sufficient capital and the services of highly skilled traders, Investment Executives, and Institutional Salespeople. In fiscal 1995, First Albany added an institutional municipal risk trading operation, in which certain inventory positions are hedged by highly liquid future contracts. Most of the inventory positions are carried for the purpose of generating sales by the retail and institutional salesforce. First Albany's trading activities require the commitment of capital and may place First Albany's capital at risk. Profits and losses are dependent upon the skill of traders, price movement, trading activity, and the size of inventories. In executing customers' orders to buy or sell in the over-the-counter market in a security in which it makes a market, First Albany may sell to or purchase from its customers at a price which is substantially equal to the current inter- dealer market price, plus or minus a markup or markdown. Alternatively, First Albany may act as an agent, executing a customer's purchase or sale order with another broker-dealer, who acts as a market maker, at the best inter-dealer market price available and charging a commission. The following table sets forth the highest, lowest, and average month-end inventories (including the net of securities owned and securities sold, but not yet purchased) for calendar 1997 by securities category where First Albany acted as principal. Highest Lowest Average (In thousands of dollars) Inventory Inventory Inventory - -------------------------------------------------------------------------------- State and municipal bonds $163,106 $ 54,447 $ 95,850 Corporate obligations 21,346 3,313 9,580 Corporate stocks 3,312 813 1,905 U.S. Government and federal agencies obligations 12,814 (3,332) 4,478
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 1997 12 $322,137 110 $126,250 December 1996 9 348,292 177 218,452 December 1995 (three-months) 2 86,828 74 73,303 September 1995 13 514,583 203 227,170 September 1994 13 483,814 334 349,723 September 1993 3 158,300 344 366,314
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 1997 243 $26,480,340 293 $ 4,398,478 December 1996 267 19,291,904 302 3,226,226 December 1995 (three-months) 47 6,322,205 59 522,292 September 1995 113 12,235,469 222 1,362,845 September 1994 123 14,744,502 332 1,598,182 September 1993 171 18,379,821 349 1,741,206
Participation in an underwriting syndicate or selling group involves both economic and regulatory risks. An underwriter or selling group member may incur losses if it is forced to resell the securities it is committed to purchase at less than the agreed-upon purchase price. In addition, under the federal securities laws, other statutes, and court decisions with respect to underwriters' liabilities and limitations on indemnification of underwriters by issuers, an underwriter is subject to substantial potential liability for material misstatements or omissions in prospectuses and other communications with respect to underwritten offerings. Further, underwriting or selling commitments constitute a charge against net capital and First Albany's underwriting or selling commitments may be limited by the requirements that it must at all times be in compliance with the net capital rule. See "Net Capital Requirements". Interest - -------- First Albany derives interest income primarily from the financing of customer margin loans, securities lending activities, and securities owned. Customers' securities transactions are effected on either a cash or margin basis. In margin transactions, First Albany extends credit, which is collateralized by securities and cash in the customer's account, to the customer. In accordance with Federal Reserve Bank regulations, NYSE regulations, and internal policy, First Albany earns interest income as a result of charging customers at a rate of up to 2 3/4% over the brokers' call rate. During the past several years, cash balances in customers' accounts have been a source of funds to finance customers' margin account debit balances. SEC regulations restrict the use of customers' funds by broker-dealers by providing generally that free credit balances and funds derived from pledging and lending customers' securities are to be used only to finance customers' margin account debit balances, and, to the extent not so used, the funds must be deposited in a special reserve bank account for the exclusive benefit of customers. The regulations also require broker-dealers, within designated periods of time, to obtain physical possession or control of, and to segregate, customers' fully paid and excess margin securities. In the ordinary course of both its trading and brokerage activities, First Albany borrows securities to cover short sales and to complete transactions in which customers or other brokers have failed to deliver securities by the required settlement date. First Albany also lends securities to other brokers and dealers for similar purposes. When borrowing securities, First Albany is required to deposit cash or other collateral, or to post a letter of credit with the lender and receive a rebate (based on the amount of cash deposited) calculated to yield a negotiated rate of return. When lending securities, First Albany receives cash and generally pays a rebate (based on the amount of cash received) to the other party to the transaction. Securities borrow and loan transactions are executed pursuant to written agreements with counter-parties which provide that the securities borrowed or loaned be marked to market on a daily basis and that excess collateral be refunded or that additional collateral be furnished in the event of changes in the market value of the securities. Collateral adjustments are usually made on a daily basis through the facilities of various clearinghouses. Operations, Clearing, and Systems - --------------------------------- First Albany's operations include: execution of orders; processing of transactions; receipt, identification, and delivery of funds and securities; custody of customers' securities; internal financial control; and compliance with regulatory and legal requirements. The volume of transactions handled by the operations staff fluctuates substantially. The monthly number of purchase and sale transactions processed for the periods indicated were as follows: Number of Monthly Transactions Year Ended High Low Average - ---------- ------------------------------------------------ December 1997 101,571 52,773 69,609 December 1996 75,140 49,631 56,956 December 1995 (three months) 60,880 45,543 50,880 September 1995 56,251 35,440 42,181 September 1994 44,917 30,685 36,412 September 1993 40,326 28,784 33,630
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 Services Department advises customers on a variety of interrelated financial matters, including investment portfolio review, tax management, insurance analysis, education and retirement planning, survivor income needs, and estate tax analysis. For a fee, financial planners will prepare a detailed analysis with specific recommendations aimed at accumulating wealth and attaining financial goals. First Albany also offers a range of retirement plans, including IRAs, SEP Plans, profit sharing, 401(k), and pension programs. Fixed and variable annuities are available as well as life, disability, and nursing home insurance programs, limited partnership interests in real estate, oil and gas drilling, and similar ventures. Research - -------- First Albany maintains a professional staff of equity analysts. Research is focused on five industry sectors: technology, financial services, energy, utilities, and basic industry. First Albany employs 12 analysts and 12 research assistants who support First Albany's institutional and corporate finance activities. In fiscal 1995, First Albany enlarged the scope of its research in the technology sector by entering into a strategic alliance with the META Group, Inc. ("META"). META, an independent market assessment company, provides research and analysis of developments and trends in information technology ("IT"), including computer hardware, software, communications and related information technology industries to both IT users and IT vendors. The alliance with META enables First Albany to provide its investors with insights drawn from META's analysis of technology trends, user experience, and vendor pricing and negotiating tactics. Research services include review and analysis of the economy; general market conditions; technology trends, industries and specific companies via both fundamental and technical analyses; recommendations of specific action with regard to industries and specific companies; preparation of research reports which are provided to retail and institutional customers; and responses to inquiries from customers. In addition, First 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 years ended December 31, 1997, December 31, 1996, the three month period ended December 31, 1995 and fiscal year 1995, these revenues accounted for approximately 52%, 45%, 49%, and 53%, of operating revenues, respectively. Institutional Business - ---------------------- Revenues generated from securities transactions with major institutions for the calendar years ended December 31, 1997, December 31, 1996, the three month period ended December 31, 1995 and fiscal year 1995, accounted for approximately 32%, 34%, 36%, and 31%, of operating revenues, respectively. Institutional revenues are derived from sales of tax-exempt securities, taxable debt obligations, and equities and are generated by 83 Institutional Salespeople. Municipal Bond Business - ----------------------- The tax-exempt department consists of 105 professionals and offers a broad range of services, including primary market underwriting, secondary market trading, institutional sales, sales liaison with branches, portfolio analysis, credit analysis, investment banking services, and financial advisory services. Sales revenues from all secondary market tax-exempt products were $14.9 million for the calendar year ended December 31, 1997; $15.0 million for the calendar year ended December 31, 1996; $3.2 million for the three-month period ended December 31, 1995; and $12.9 million in fiscal 1995. Employees - --------- At December 31, 1997, the Company had 843 full-time employees, of which 252 were Retail Investment Executives, 127 were Institutional Salespeople and Institutional Traders, 155 were in branch sales support, 141 were in other revenue producing positions, 60 were in operations, and 108 were in other support and administrative functions. New Investment Executives are required to take examinations given by the NASD and approved by the NYSE and all principal exchanges as well as state securities authorities in order to be registered. There is intense competition among securities firms for Investment Executives with proven sales production records. The Company considers its employee relations to be good and believes that its compensation and employee benefits are competitive with those offered by other securities firms. None of the Company's employees are covered by a collective bargaining agreement. Competition - ----------- 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, 1997, First Albany's net capital was $18,605,000 which was 9.5% of its aggregate debit balances (2% minimum requirement) and $14,670,000 in excess of required minimum net capital. Item 2. Properties - ------------------- As of February 1998, the Company had a total of 27 Retail, Institutional, and Investment Banking offices in 10 states, all of which are leased or rented. The Company's executive offices are located at 30 South Pearl Street, Albany, New York. The order entry, trading, investment banking, research, data processing, operations, and accounting activities are centralized in the Albany office. The offices at 30 South Pearl Street are operated under a lease which currently expires in the year 2002. All other offices are subject to lease or rental agreements that expire at various times through March 2008. These leases, in the opinion of management, are sufficient to meet the needs of the Company. A list of locations are as follows: Albany, NY Garden City, NY Norwich, NY 30 South Pearl St. Retail Sales Retail Sales Retail & Institutional Sales, Investment Banking, DP, Research, Back Office Hartford, CT Oneonta, NY Retail & Institutional Retail Sales Sales 80 State St. Johnstown, NY Philadelphia, PA Retail Sales Retail Sales Institutional Sales Bonita Springs, FL Los Angeles, CA Pittsfield, MA Institutional Sales Investment Banking Retail Sales Boston, MA Manchester, NH San Francisco Retail & Institutional Sales Retail Sales (Burlingame), CA Investment Banking, DP, Research Investment Banking Buffalo, NY Morristown, NJ Syracuse, NY Retail Sales Institutional Sales Retail Sales Colchester(Burlington), VT Nashua, NH Vestal Retail Sales Retail Sales (Binghamton), NY Retail Sales Chicago, IL New York, NY Wellesley, MA Retail Sales One Penn Plaza 40 Grove St. Retail & Institutional Institutional Sales Sales, Investment Banking, Elmira, NY DP, Research, Back Office Retail Sales 330 Washington St. Retail Sales Fairfield, CT 17 State St. Retail Sales Retail Sales Operations Item 3. Legal Proceedings - -------------------------- In the normal course of business, the Company has been named a defendant, or otherwise has possible exposure, in several claims. Certain of these claims are class actions which seek unspecified damages that could be substantial. Although there can be no assurance as to the eventual outcome of litigation in which the Company has been named as a defendant or otherwise has possible exposure, the Company has provided for those actions it believes are likely to result in adverse dispositions. Although further losses are possible, the opinion of management, based upon the advice of its attorneys and general counsel, is that such litigation will not, in the aggregate, have a material adverse effect on the Company's liquidity or financial position, although it could have a material effect on quarterly or annual operating results in the period in which it is resolved. Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------- None. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters - --------------------------------------------------------------------------- The Company's common stock trades on the NASDAQ Stock Market under the symbol "FACT". As of March 13, 1998 there were approximately 1,446 holders of record of the Company's common stock. The following table sets forth the high and low bid quotations for the common stock as adjusted for subsequent stock dividends, along with cash dividends during each quarter for the fiscal years ended: December 31, 1997 Quarters Ended - -------------------------------------------------------------------------------- Stock Price Range Mar. 28 June 27 Sept.26 Dec. 31 - -------------------------------------------------------------------------------- High $10 3/8 $14 1/2 $15 1/2 $16 3/8 Low $ 9 1/8 $ 9 1/4 $12 1/8 $12 5/8 Cash Dividend per Share $ 0.05 $ 0.05 $ 0.05 $ 0.05 December 31, 1996 Quarters Ended - -------------------------------------------------------------------------------- Stock Price Range Mar. 29 June 28 Sept.27 Dec. 31 - -------------------------------------------------------------------------------- High $ 9 1/4 $ 9 1/2 $ 9 1/2 $ 9 3/4 Low $ 8 1/8 $ 8 1/8 $ 8 1/8 $ 7 7/8 Cash Dividend per Share $ 0.05 $ 0.05 $ 0.05 $ 0.05 December 31, 1995 Three-month period - -------------------------------------------------------------------------------- Stock Price Range Dec. 31 - -------------------------------------------------------------------------------- High $ 8 5/8 Low $ 6 3/8 Cash Dividend per Share $ 0.05
The Board of Directors has from time to time authorized the Company to repurchase shares of its common stock either in the open market or otherwise. As of December 31, 1997, the total number of treasury shares was 109,279. When appropriate, the Company will consider making additional purchases. During calendar 1997, the Company declared and paid four quarterly cash dividends totaling $.20 per share of common stock, and declared and issued two 5% common stock dividends. In January 1998, subsequent to the period reflected in this report, the Company declared the regular quarterly cash dividend of $0.05 per share payyable on February 26, 1998 to shareholders of record on February 12, 1998. 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. FINANCIAL SUMMARY (In thousands of dollars except per share amounts) ------------------------For the Years Ended---------------------------- Dec. 31, Dec. 31, Dec. 31, Sept. 29, Sept.30, Sept. 24, For the years ended 1997 1996 1995 1995 1994 1993 - -------------------------------------------------------------------------------------------------- Operating Results Revenues: Commissions $ 52,987 $ 42,711 $ 34,941 $ 31,889 $ 29,553 $ 28,884 Principal transactions 63,235 63,438 44,821 43,198 36,167 34,857 Investment banking 19,636 19,558 16,311 14,625 19,164 23,265 Fees and other 11,640 10,244 7,530 7,214 6,578 5,901 - -------------------------------------------------------------------------------------------------- Operating revenues 147,498 135,951 103,603 96,926 91,462 92,907 Interest income 45,474 32,240 28,075 26,173 16,222 9,483 - -------------------------------------------------------------------------------------------------- Total revenues 192,972 168,191 131,678 123,099 107,684 102,390 Interest expense 38,615 26,030 21,985 19,904 10,467 5,257 - -------------------------------------------------------------------------------------------------- Net revenues 154,357 142,161 109,693 103,195 97,217 97,133 - -------------------------------------------------------------------------------------------------- Expenses (excluding interest): Compensation and benefits 105,080 95,691 74,596 71,064 65,513 64,388 Clearing, settlement and brokerage costs 3,358 2,868 2,378 2,258 1,894 1,981 Communications and data processing 12,872 10,897 8,244 7,794 7,198 6,209 Occupancy and depreciation 13,203 8,527 6,909 6,660 5,710 5,395 Selling 8,027 7,246 5,231 4,817 4,779 4,152 Other 8,915 7,840 5,912 5,382 4,755 6,242 - -------------------------------------------------------------------------------------------------- Total expenses (excl. interest) 151,455 133,069 103,270 97,975 89,849 88,367 - -------------------------------------------------------------------------------------------------- Income before income taxes 2,902 9,092 6,423 5,220 7,368 8,766 Income tax expense 1,251 3,592 2,363 1,870 2,876 3,375 - --------------------------------------------------------------------------------------------------- Income before extraordinary gain 1,651 5,500 4,060 3,350 4,492 5,391 Extraordinary gain, net of $255 taxes 305 - --------------------------------------------------------------------------------------------------- Net income $ 1,956 $ 5,500 $ 4,060 $ 3,350 $ 4,492 $ 5,391 =================================================================================================== Per Common Share: * Earnings-basic $ 0.34 $ 1.00 $ 0.74 $ 0.61 $ 0.83 $ 0.99 Cash dividend 0.20 0.20 0.20 0.20 0.20 0.20 Book value 7.64 7.55 6.82 6.59 6.16 5.50 - --------------------------------------------------------------------------------------------------- Financial Condition: Total assets $831,921 $675,785 $510,081 $543,255 $482,749 $514,794 Notes payable 7,271 4,583 1,641 1,791 94 456 Obligations under capitalized leases 3,088 1,426 Subordinated debt 7,500 5,000 2,250 Stockholders' equity 44,548 42,274 37,558 36,192 33,230 30,088 - ---------------------------------------------------------------------------------------------------
*All per share figures have been restated for all 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 and insurance companies that offer a variety of investment products. 1997 was an unusually good year for the equity markets in general. The yield on long-term U.S. Treasury bonds decreased from 6.64% to 5.92% while the Dow Jones Industrial Average rose from 6448 to 7908. As a result, stock prices registered a total return of 33.3% as measured by the S&P 500, and bonds registered a return of 9.8% as measured by the Lehman Brothers Government/Corporate Index. The stock market return was unusual. The compound annual returns with all the dividends and interest reinvested between 1925 and 1997 for government bonds was 5.2% and for equities was 11%. Although First Albany remains optimistic about the outlook for equity prices in 1998, a pullback in prices could occur. If such a pullback should occur, it would have a damaging effect on the secondary markets. Revenues from security trading, commission revenues, and underwriting fees and profits of First Albany Corporation would most likely suffer. RESULTS OF OPERATIONS FIRST ALBANY COMPANIES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.) 1997 vs. Twelve Months Ended 1996 Percentage December 31, December 31, Increase Increase (In thousands of dollars) 1997 1996 (Decrease) (Decrease) - ------------------------------------------------------------------------------------- Revenues: Commissions $ 52,987 $ 42,711 $ 10,276 24% Principal transactions 63,235 63,438 (203) 0% Investment banking 19,636 19,558 78 0% Fees and other 11,640 10,244 1,396 14% - ------------------------------------------------------------------------------------- Operating revenue 147,498 135,951 11,547 9% Interest income 45,474 32,240 13,234 41% - ------------------------------------------------------------------------------------- Total Revenues 192,972 168,191 24,781 15% Interest expense 38,615 26,030 12,585 48% - ------------------------------------------------------------------------------------- Net revenues 154,357 142,161 12,196 9% - ------------------------------------------------------------------------------------- Expenses (excluding interest): Compensation and benefits 105,080 95,691 9,389 10% Clearing, settlement and brokerage cost 3,358 2,868 490 17% Communications and data processing 12,872 10,897 1,975 18% Occupancy and depreciation 13,203 8,527 4,676 55% Selling 8,027 7,246 781 11% Other 8,915 7,840 1,075 14% - ------------------------------------------------------------------------------------- Total expenses (excluding interest) 151,455 133,069 18,386 14% - ------------------------------------------------------------------------------------- Income before income taxes 2,902 9,092 (6,190) (68%) Income tax expense 1,251 3,592 (2,341) (65%) - ------------------------------------------------------------------------------------- Income before extraordinary items 1,651 5,500 (3,849) (70%) Extraordinary gain, net of $255 taxes 305 305 - ------------------------------------------------------------------------------------- Net Income $ 1,956 $ 5,500 $ (3,544) (64%) ===================================================================================== Net interest income: Interest income $ 45,474 $ 32,240 $ 13,234 41% Interest expense 38,615 26,030 12,585 48% - ------------------------------------------------------------------------------------- Net interest income $ 6,859 $ 6,210 $ 649 10% =====================================================================================
FIRST ALBANY COMPANIES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.) Calendar Year 1997 Compared with Calendar Year 1996 Net Income - ---------- Net income for the calendar year ended December 31, 1997 was $2.0 million or $0.34 basic earnings per share compared to $5.5 million or $1.00 basic earnings per share a year ago. This year's increase in net revenues of $12.2 million, primarily reflects increases in the Company's municipal and retail divisions. Although earnings continued to improve throughout 1997, earnings remain negatively impacted by our investment in people and technology. In the fourth quarter of calendar 1997, we began to see progress from our cost reduction efforts, with a 5% decrease in non-compensation related expenses over the previous quarter. We expect to continue our cost reduction efforts throughout 1998. Commissions - ----------- Commission revenues increased $10.3 million or 24% in calendar 1997 reflecting active trading in all major markets. Revenues from listed stocks and over-the-counter agency stock commissions increased $5.6 million or 20%, with mutual fund commission revenues increasing $3.6 million or 29% and options commissions increased $1.0 million or 50%. Principal Transactions - ---------------------- Principal transactions remained stable in calendar 1997. Taxable fixed income increased $2.4 million, municipal bonds increased $2.1 million, equities decreased $3.8 million, and investment income decreased $0.9 million. Investment Banking - ------------------ Investment banking revenues remained stable in calendar 1997. Revenues from investment banking fees increased $2.3 million (municipal finance fees increased $1.6 million while corporate finance fees increased $0.7 million). Selling concessions were down $1.8 million (municipals were the same as the prior year, equities decreased $1.4 million and taxable fixed income decreased $0.4 million), and underwriting fees decreased $0.4 million (municipals increased $0.5 million, equities decreased $0.9 million). Fees and Other - -------------- Fees and other revenues increased $1.4 million or 14% in calendar 1997 primarily reflecting increased service charge income and financial service revenues. Compensation and Benefits - ------------------------- Compensation and benefits increased $9.4 million or 10% in calendar 1997 due partly to the increase in revenues. Sales-related compensation increased $3.2 million, salaries increased $3.5 million, and benefits increased $2.7 million partly due to an increase in medical insurance costs. In late 1997, the Company changed its medical insurance plan, which will reduce its costs in 1998. Communications and Data Processing - ---------------------------------- Communications and data processing increased $2.0 million or 18% in calendar 1997. Communications expense increased $1.5 million due mainly to the firm's upgrade in technology and increased headcount. Data processing expense increased $0.5 million due in most part to a greater number of transactions. FIRST ALBANY COMPANIES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.) Occupancy and Depreciation - -------------------------- Occupancy and depreciation expense increased $4.7 million or 55% in calendar 1997 primarily as a result of the upgrade of our retail branch technology and the expansion of our retail and institutional offices in New York City. Other - ----- Other expense increased $1.1 million or 14% in calendar 1997 due to an increase in consulting fees and investments in enhanced client communications. Extraordinary Gain, net of taxes - -------------------------------- The Company realized an extraordinary gain of $0.3 million, net of taxes. This extraordinary gain was the result of the Company's investment in Mechanical Technology Incorporated ("MTI"). The Company's investment in MTI is recorded under the equity method. The Company recorded its share of MTI's extraordinary gains as an extraordinary gain on the Company's books. During the first quarter of MTI's 1997 fiscal year, MTI realized an extraordinary gain due to the extinguishment of debt. 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 other 10,244 7,530 2,714 36% - -------------------------------------------------------------------------------- Operating revenues 135,951 103,603 32,348 31% Interest income 32,240 28,075 4,165 15% - -------------------------------------------------------------------------------- Total Revenues 168,191 131,678 36,513 28% Interest expense 26,030 21,985 4,045 18% - -------------------------------------------------------------------------------- Net revenues 142,161 109,693 32,468 30% - -------------------------------------------------------------------------------- Expenses (excluding interest): Compensation and benefits 95,691 74,596 21,095 28% Clearing, settlement and brokerage cost 2,868 2,378 490 21% Communications and data processing 10,897 8,244 2,653 32% Occupancy and depreciation 8,527 6,909 1,618 23% Selling 7,246 5,231 2,015 39% Other 7,840 5,912 1,928 33% - -------------------------------------------------------------------------------- Total expenses (excluding interest) 133,069 103,270 29,799 29% - -------------------------------------------------------------------------------- Income before income taxes 9,092 6,423 2,669 42% Income tax expense 3,592 2,363 1,229 52% - -------------------------------------------------------------------------------- Net income $ 5,500 $ 4,060 $ 1,440 35% ================================================================================ Net interest income: Interest income $ 32,240 $ 28,075 $ 4,165 15% Interest expense 26,030 21,985 4,045 18% - -------------------------------------------------------------------------------- Net interest income $ 6,210 $ 6,090 $ 120 2% ================================================================================
FIRST ALBANY COMPANIES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.) Calendar Year 1996 Compared with Calendar Year 1995 Net Income - ---------- Net income for the calendar year ended December 31, 1996 was $5.5 million or $1.00 basic earnings per share compared to $4.1 million or $0.74 basic earnings per share a year ago. The 1996 revenue gain reflects significant increases in both the Company's institutional and retail divisions. Net revenues increased over 60% for our equity capital markets division and over 50% for our fixed income capital markets division, while revenues in the retail division increased nearly 25%. In the second half of 1996, continued strong revenues were offset in part by our investment in people and systems. Commissions - ----------- Commission revenues increased $7.8 million or 22% in calendar 1996 reflecting active trading in all major markets. Revenues from listed stocks and over-the- counter agency stock commissions increased $4.5 million or 19% with mutual fund commission revenues increasing $3.1 million or 33%. Principal Transactions - ---------------------- Principal transactions increased $18.6 million or 42% in calendar 1996. This growth was comprised of an increase in equity securities of $10.3 million, an increase in municipal bonds of $0.7 million, an increase in taxable fixed income of $5.9 million and an increase in investment income of $1.7 million, primarily from META Group, Inc. Investment Banking - ------------------ Investment banking revenues increased $3.2 million or 20% in calendar 1996. Revenues from selling concessions were up $0.7 million (municipals increased $1.6 million, equities decreased $0.8 million and taxable fixed income decreased $0.1 million), underwriting fees increased $0.5 million (primarily equities), and investment banking fees increased $2.0 million (municipal finance fees increased $1.5 million while corporate finance fees increased $0.5 million). Fees and Other - -------------- Fees and other revenues increased $2.7 million or 36% in calendar 1996 primarily reflecting increased service charge income and financial service revenues. Compensation and Benefits - ------------------------- Compensation and benefits increased $21.1 million or 28% in calendar 1996 due primarily to the increase in revenues. Sales-related compensation increased $17.8 million, salaries increased $2.7 million, and benefits increased $0.6 million. Communications and Data Processing - ---------------------------------- Communications and data processing increased $2.7 million or 32% in calendar 1996. Communications expense increased $2.2 million due mainly to the Company's continued commitment to upgrading technology, its increase in personnel and the growth of its business related activity. Data processing expense increased $0.5 million due in most part to a greater number of transactions. FIRST ALBANY COMPANIES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.) Occupancy and Depreciation - -------------------------- Occupancy and depreciation expense increased $1.6 million or 23% in calendar 1996 primarily as a result of our continuing investment in new automated systems. Selling - ------- Selling expense increased $2.0 million or 39% in calendar 1996 mainly reflecting greater promotional- related expenses resulting from increased retail and institutional activity. Other - ----- Other expense increased $1.9 million or 33% in calendar 1996 due to an increase in consulting costs and expenses related to an upgrade in our customer statement. 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 other 1,870 1,553 317 20% - ----------------------------------------------------------------------------------- Operating revenues 29,266 22,588 6,678 30% Interest income 8,138 6,237 1,901 30% - ----------------------------------------------------------------------------------- Total Revenues 37,404 28,825 8,579 30% Interest expense 6,631 4,551 2,080 46% - ----------------------------------------------------------------------------------- Net revenues 30,773 24,274 6,499 27% - ----------------------------------------------------------------------------------- Expenses (excluding interest): Compensation and benefits 20,433 16,900 3,533 21% Clearing, settlement and brokerage cost 613 493 120 24% Communications and data processing 2,264 1,814 450 25% Occupancy and depreciation 1,842 1,593 249 16% Selling 1,563 1,149 414 36% Other 1,576 1,046 530 51% - ----------------------------------------------------------------------------------- Total expenses (excluding interest) 28,291 22,995 5,296 23% - ----------------------------------------------------------------------------------- Income before income taxes 2,482 1,279 1,203 94% Income tax expense 929 436 493 113% - ----------------------------------------------------------------------------------- Net income $ 1,553 $ 843 $ 710 84% =================================================================================== Net interest income: Interest income $ 8,138 $ 6,237 $ 1,901 30% Interest expense 6,631 4,551 2,080 46% - ----------------------------------------------------------------------------------- Net interest income $ 1,507 $ 1,686 $ (179) (11)% ===================================================================================
FIRST ALBANY COMPANIES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.) Three Month Period Ended December 31, 1995 and December 31, 1994 Net Income - ----------- Net income for the quarter ended December 31, 1995, was $1.6 million or $0.28 basic earnings per share compared to $0.8 million or $0.16 basic earnings per share a year ago. Most of the Company's business units showed significant revenue gains in the three month period ending December 31, 1995 compared to the three month period ending December 31, 1994. Revenues in both the equity capital markets and municipal divisions increased over 50%, while revenues in the retail division were up almost 20%. Commissions - ----------- Commission revenues increased $3.1 million or 46% in the three month period ending December 31, 1995 reflecting active trading in all major markets. Revenues from listed and over-the-counter agency stock commissions increased $2.0 million or 44% with mutual fund commission revenues increasing $1.0 million or 57%. Principal Transactions - ---------------------- Principal transactions increased $1.6 million or 15% in the three month period ending December 31, 1995. This growth was comprised of an increase in equity securities of $0.9 million, an increase in municipal bonds of $0.3 million and an increase in taxable fixed income of $0.4 million. Investment Banking - ------------------ Investment banking revenues increased $1.7 million or 45% in the three month period ending December 31, 1995. Revenues from selling concessions were up $1.0 million (equities increased $0.4 million, municipals increased $0.4 million and taxable fixed income increased $0.2 million), underwriting fees increased $0.6 million (primarily municipal bonds), and investment banking fees increased $0.1 million (municipal finance fees increased $0.3 million while corporate finance fees decreased $0.2 million). Fees and Other - -------------- Fees and other revenues increased $0.3 million or 20% reflecting increased service charge income and financial service revenues. Compensation and Benefits - ------------------------- Compensation and benefits increased $3.5 million or 21% due primarily to the increase in revenues. Sales-related compensation increased $2.4 million, salaries increased $0.9 million, and benefits increased $0.2 million. Communications and Data Processing - ---------------------------------- Communications and data processing increased $0.5 million or 25% in the three month period ending December 31, 1995. Communications expense increased $0.4 million due mainly to the Company's buildup in institutional equity sales and research. Data processing expense increased $0.1 million due primarily to a greater number of transactions. 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.) LIQUIDITY AND CAPITAL RESOURCES A substantial portion of the Company's assets, similar to other brokerage and investment banking firms, is liquid, consisting of cash and assets readily convertible into cash. These assets are financed primarily by the Company's interest-bearing and non-interest-bearing payables to customers, payables to brokers and dealers secured by loaned securities, and bank lines-of-credit. Securities borrowed and securities loaned along with receivables from customers and payable to customers will fluctuate primarily due to the current level of business activity in these areas. Securities owned will fluctuate as a result of the changes in the level of positions held to facilitate customer transactions and changes in market conditions. Short-term bank loans decreased due partly to a decrease in securities owned. Securities loaned, net, increased primarily due to an increase in net customer receivables. Receivables from others and payables to others will fluctuate primarily due to the change in the adjustment to record securities owned on a trade date basis. At fiscal year-end 1997, First Albany Corporation, a registered broker- dealer subsidiary of First Albany Companies Inc., was in compliance with the net capital requirements of the Securities and Exchange Commission and had capital in excess of the minimum required. Management believes that funds provided by operations and a variety of bank lines-of-credit-totaling $190,000,000 of which approximately $90,298,000 were unused as of December 31, 1997-will provide sufficient resources to meet present and reasonably foreseeable short-term financial needs. During 1997, the Company declared and paid four quarterly cash dividends totaling $0.20 per share of common stock, as well as declared and issued two 5% common stock dividends. In January 1998, subsequent to the period reflected in this report, the Company declared the regular quarterly cash dividend of $0.05 per share payable on February 26, 1998, to shareholders of record on February 12, 1998. Management believes that funds provided by operations will be sufficient to fund the acquisition of office equipment, leasehold improvements, and other long-term requirements. New Accounting Standards - ------------------------ Financial Accounting Standards Board No. 125 - "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement, which would be effected for all transfers after December 31, 1997, addresses several matters that have a significant impact of the Broker/Dealer industry. It addresses how and when to record transferred assets, transfers of partial interest, servicing of financial assets, securitizations, transfers of sales-type and direct financing lease receivables, securities lending transactions, repurchase agreements including "dollar rolls," "wash sales," loan syndications and participations, risk participations in banker's acceptances, factoring arrangements, transfer of receivables with recourse, and extinguishment of liabilities, collateral, repurchase agreements and how to amortize servicing assets and liablities. Management has reviewed this statement and has determined that it has no material effect on the presentation of the consolidated financial statements. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive Income" ("SFAS 130") and "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), respectively (collectively, the Statements"). The Statements are effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting of comprehensive income and its components in annual financial statements. SFAS 131 establishes standards for reporting financial and descriptive information about an enterprise's operating segments in its annual financial statements and selected segment information in FIRST ALBANY COMPANIES INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (cont.) interim financial reports. Reclassification or restatement of comparative financial statements or financial information for earlier periods is required upon adoption of SFAS 130 and SFAS 131, respectively, Application of the Statements' requirements is not expected to have a material impact on the Company's consolidated financial position, results of operations or earnings per share data as currently reported. Year 2000 - --------- The Company relies on both internal systems and systems of other parties in regard to its business, accounting and operational software. As the millennium approaches, the Company is working toward becoming year 2000 compliant. Many of our internal systems are already year 2000 compliant. The Company currently has plans that if successful will have all internal systems year 2000 compliant during 1998. The Company has contacted its outside vendor software providers regarding the year 2000 and has developed specific plans to address this issue. These vendors are in the process of implementing these plans with an expected completion date of late 1998. If any vendor is not successful, the Company will evaluate selecting alternative vendors at that time. The incremental costs of this project are estimated to be approximately $700,000. Most of these costs are attributable to software/hardware upgrades. The Company presently believes that with modifications to existing software or conversion to new software, year 2000 problems can be effectively avoided. However, if such modifications and conversions are not made, or are not completed timely, year 2000 problems could have a material impact on the operations of the Company. Item 8. Financial Statements and Supplementary Data. Index to Financial Statements and Supplementary Data ---------------------------------------------------- Page ---- REPORT OF INDEPENDENT ACCOUNTANTS 25 FINANCIAL STATEMENTS: Consolidated Statements of Income For the Calendar Years Ended December 31, 1997, and December 31, 1996; the three-month Transition Period ended December 31, 1995; and the Fiscal Year Ended September 29, 1995 26 Consolidated Statements of Financial Condition as of December 31, 1997, December 31, 1996 and December 31, 1995 (unaudited) 27 Consolidated Statements of Changes in Stockholders' Equity for the Calendar Years Ended December 31, 1997 and December 31, 1996; the three-month Transition Period ended December 31, 1995, and the Fiscal Year Ended September 29, 1995 28 Consolidated Statements of Cash Flows for the Calendar Years Ended December 31, 1997 and December 31, 1996; the Three-month Transition Period ended December 31, 1995; and the Fiscal Year Ended September 29, 1995, 29-30 Notes to Consolidated Financial Statements 31-45 SUPPLEMENTARY DATA: Selected Quarterly Financial Data (Unaudited) 46 Report of Independent Accountants Board of Directors and Stockholders First Albany Companies Inc. We have audited the consolidated statements of financial condition of First Albany Companies Inc. as of December 31, 1997 and 1996 and the related statements of income, changes in stockholder's equity and cash flows for the years ended December 31, 1997 and 1996, the three months ended December 31, 1995 and the year ended September 29, 1995 and the financial statement listed in Item 14(a) of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of First Albany Companies Inc. as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for the years ended December 31, 1997 and 1996, the three months ended December 31, 1995, and for the year ended September 29, 1995 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Albany, New York March 23, 1998 First Albany Companies Inc. CONSOLIDATED STATEMENTS OF INCOME (In thousands of dollars, except per share amounts) Three-Month Transition Period December 31, December 31, December 31, September 29, For the years ended 1997 1996 1995 1995 - ---------------------------------------------------------------------------------------- Revenues: Commissions $ 52,987 $ 42,711 $ 9,639 $ 31,889 Principal transactions 63,235 63,438 12,322 43,198 Investment banking 19,636 19,558 5,435 14,625 Interest 45,474 32,240 8,138 26,173 Fees and other 11,640 10,244 1,870 7,214 - ---------------------------------------------------------------------------------------- Total revenues 192,972 168,191 37,404 123,099 Interest expense 38,615 26,030 6,631 19,904 - ---------------------------------------------------------------------------------------- Net revenues 154,357 142,161 30,773 103,195 - ---------------------------------------------------------------------------------------- Expenses (excluding interest): Compensation and benefits 105,080 95,691 20,433 71,064 Clearing, settlement and brokerage costs 3,358 2,868 613 2,258 Communications and data processing 12,872 10,897 2,264 7,794 Occupancy and depreciation 13,203 8,527 1,842 6,660 Selling 8,027 7,246 1,563 4,817 Other 8,915 7,840 1,576 5,382 - ---------------------------------------------------------------------------------------- Total expenses (excluding interest) 151,455 133,069 28,291 97,975 - ---------------------------------------------------------------------------------------- Income before income taxes 2,902 9,092 2,482 5,220 Income tax expense 1,251 3,592 929 1,870 - ---------------------------------------------------------------------------------------- Income before extraordinary items 1,651 5,500 1,553 3,350 Extraordinary gain, net of $255 taxes 305 - ---------------------------------------------------------------------------------------- Net income $ 1,956 $ 5,500 $ 1,553 $ 3,350 ======================================================================================== Basic Earnings Per Share: Income before extraordinary gain $ 0.29 $ 1.00 $ 0.28 $ 0.61 Extraordinary gain 0.05 0.00 0.00 0.00 - ---------------------------------------------------------------------------------------- Net Income $ 0.34 $ 1.00 $ 0.28 $ 0.61 ======================================================================================== Dilutive Earnings Per Share: Income before extraordinary gain $ 0.26 $ 0.93 $ 0.26 $ 0.59 Extraordinary gain 0.05 0.00 0.00 0.00 - ---------------------------------------------------------------------------------------- Net Income $ 0.31 $ 0.93 $ 0.26 $ 0.59 ========================================================================================
*All per share figures have been restated to reflect all stock dividends paid. The accompanying notes are an integral part of the consolidated financial statements. First Albany Companies Inc. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands of dollars) December 31, December 31, December 31, 1997 1996 1995 (unaudited) - ------------------------------------------------------------------------------------- Assets Cash $ 951 $ 4,005 $ 5,450 Cash segregated under federal regulations 1,300 Securities purchased under agreement to resell 5,299 2,869 Securities borrowed 468,786 344,904 283,785 Receivables from: Brokers, dealers and clearing agencies 4,421 1,856 7,231 Customers 182,976 128,130 99,759 Others 7,760 8,181 17,492 Securities owned 121,116 156,154 80,586 Investments 7,026 6,157 1,470 Office equipment and leasehold improvements, net 12,947 12,584 6,075 Other assets 20,639 10,945 6,933 - ------------------------------------------------------------------------------------- Total Assets $831,921 $675,785 $510,081 ===================================================================================== Liabilities and Stockholders' Equity Liabilities Short-term bank loans $ 99,702 $134,712 $112,292 Securities sold under agreement to repurchase 891 Securities loaned 547,847 350,577 283,146 Payables to: Brokers, dealers and clearing agencies 2,955 3,150 3,281 Customers 49,181 48,174 48,274 Others 37,201 56,615 5,000 Securities sold but not yet purchased 8,440 10,075 4,407 Accounts payable 4,196 1,928 2,457 Accrued compensation 13,025 11,649 7,617 Accrued expenses 6,076 5,622 4,408 Notes payable 7,271 4,583 1,641 Obligations under capitalized leases 3,088 1,426 - -------------------------------------------------------------------------------------- Total Liabilities 779,873 628,511 472,523 - -------------------------------------------------------------------------------------- Commitments and Contingencies Subordinated debt 7,500 5,000 - -------------------------------------------------------------------------------------- Stockholders' Equity Preferred stock; $1.00 par value; authorized 500,000 shares; none issued Common stock; $.01 par value; authorized 10,000,000 shares; issued 5,943,381; 5,390,594; and 4,889,747 respectively 59 54 49 Additional paid-in capital 33,024 25,591 20,257 Retained earnings 12,070 18,556 19,153 Less treasury stock at cost (605) (1,927) (1,901) - -------------------------------------------------------------------------------------- Total Stockholders' Equity 44,548 42,274 37,558 - -------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $831,921 $675,785 $510,081 ======================================================================================
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, 1997, December 31, 1996, December 31, 1995, and September 29, 1995 (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 30, 1994 4,435,454 $ 44 $ 16,489 $ 19,099 (408,450) $ (2,402) Issuance of re- stricted stock 186 (155) 19,635 130 Stock dividends declared 454,293 5 3,582 (3,587) (35,175) Cash dividends paid (815) Options exercised (70) 58,251 336 Net income 3,350 - ------------------------------------------------------------------------------------- Balance September 29, 1995 4,889,747 49 20,257 17,822 (365,739) (1,936) Cash dividends paid (217) Options exercised (5) 6,370 35 Net income 1,553 - ------------------------------------------------------------------------------------- Balance December 31, 1995 4,889,747 49 20,257 19,153 (359,369) (1,901) Issuance of re- stricted stock 340 45 74,557 413 Stock dividends declared 500,847 5 4,994 (4,999) (38,768) Cash dividends paid (932) Options exercised (211) 136,276 806 Treasury stock purchase (124,505) (1,245) Net income 5,500 - ------------------------------------------------------------------------------------- Balance December 31, 1996 5,390,594 54 25,591 18,556 (311,809) (1,927) Issuance of re- stricted stock 261 (39) 51,411 287 Stock dividends declared 552,787 5 7,172 (7,177) (21,765) Cash dividends paid (1,072) Options exercised (154) 172,884 1,035 Net income 1,956 - ------------------------------------------------------------------------------------- Balance December 31, 1997 5,943,381 $ 59 $ 33,024 $ 12,070 (109,279) $ (605) =====================================================================================
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, Dec.31, Sept. 29, For the years ended 1997 1996 1995 1995 - ----------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 1,956 $ 5,500 $ 1,553 $ 3,350 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 4,562 3,230 691 2,302 Deferred income taxes 2,251 146 587 (1,278) Undistributed earnings of affiliate (1,168) (555) Unrealized investment gains (117) (2,343) Realized gains on sale of investments (770) (Increase) decrease in operating assets: Cash and securities segregated under federal regs. 1,300 (1,300) Securities purchased under agreement to resell (2,430) (2,869) Securities borrowed, net (12,243) Net receivables from brokers, dealers, and clearing agencies (2,760) (5,165) Net receivable from customers (53,839) (28,471) (1,210) (10,394) Net receivable from others (11,662) 15,865 Securities owned, net 33,403 (69,900) (27,354) (33,031) Other assets (11,945) (4,158) (150) 1,283 Increase (decrease) in operating liabilities: Securities loaned, net 73,388 6,312 13,335 Net payables to brokers, dealers, and clearing agencies 5,244 (2,351) Net payable to others (16,494) 48,934 Accounts payable and accrued expenses 4,098 4,717 487 382 - ------------------------------------------------------------------------------------------ Net cash provided by (used in) operating activities 30,135 (32,913) (55,766) (10,537) - ------------------------------------------------------------------------------------------ Cash flows from investing activities: Purchase of furniture, equipment, and leaseholds (2,682) (8,288) (705) (3,213) Purchases of investments (15) (1,789) (1,838) Proceeds from sale of investments 1,045 - ------------------------------------------------------------------------------------------ Net cash used in investing activities (1,652) (10,077) (705) (5,051) - ------------------------------------------------------------------------------------------ Cash flows from financing activities: Proceeds (payments) of short-term bank loans, net (35,010) 22,420 59,004 14,367 Proceeds from subordinated debt 2,500 5,000 Proceeds of notes payable 5,000 5,500 2,000 Payments of notes payable (2,312) (2,558) (150) (303) Payments of obligations under capitalized leases (425) (25) Securities sold under agreement to repurchase 891 Payments for purchases of common stock for treasury (1,245) Proceeds from issuance of common stock from treasury 881 595 31 266 Proceeds from issuance of restricted stock 509 798 161 Net increase (decrease) from borrowing under line-of-credit agreements (2,499) 11,992 Dividends paid (1,072) (932) (217) (815) - ------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (31,537) 41,545 58,668 15,676 - ------------------------------------------------------------------------------------------- Increase (decrease) in cash (3,054) (1,445) 2,197 88 Cash at beginning of the period 4,005 5,450 3,253 3,165 - ------------------------------------------------------------------------------------------- Cash at the end of the period $ 951 $ 4,005 $ 5,450 $ 3,253 =========================================================================================== SUPPLEMENTAL CASH FLOW DISCLOSURES Income Tax Payments $ 681 $ 3,410 $ 608 $ 1,753 Interest Payments $ 39,808 $ 25,404 $ 6,273 $ 18,989
In 1997 and 1996, the Company entered into capital leases for office and computer equipment totaling approximately $2,087,000 and $1,451,000, respectively. The accompanying notes are an integral part of the consolidated financial statements. First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. Significant Accounting Policies Organization and Nature of Business - ----------------------------------- The consolidated financial statements include the accounts of First Albany Companies Inc. and its wholly owned subsidiaries (the "Company"). First Albany Corporation (the "Corporation") is the Company's principal subsidiary and a registered broker-dealer. The Corporation is registered with the Securities and Exchange Commission ("SEC") and is a member of various exchanges and the National Association of Securities Dealers, Inc. The Corporation's primary business includes securities brokerage for individual and institutional customers, and market-making and trading of corporate, government, and municipal securities. In addition, the Corporation underwrites and distributes municipal and corporate securities, provides securities clearance activities for other brokerage firms, and offers financial advisory services to its customers. Another of the Company's subsidiaries is First Albany Asset Management Corporation ("FAAM"). Under management agreements, FAAM serves as investment manager to individual and institutional customers. FAAM directs the investment of customer and mutual fund assets by making investment decisions, placing purchase and sales orders, and providing research, statistical analysis, and continuous supervision of the portfolios. All significant intercompany balances and transactions have been eliminated in consolidation. Investments in affiliates which are not majority owned are reported using the equity method. In July 1996, the Company changed its fiscal year end to a calendar year end. Accordingly, results from operations for the periods ending December 31, 1997 and December 31, 1996 reflect a twelve-month period ("calendar year") while results for the transitional period ending December 31, 1995 reflect a three- month period. Previously, the Company's fiscal year end was the last Friday in September, and therefore, the Company's fiscal year would contain either a 52 or 53 week period. The fiscal year ended September 29, 1995 contained 52 weeks. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Securities Transactions - ----------------------- Proprietary securities transactions are recorded on trade date, as if they had settled. Profit and loss arising from all securities transactions entered for the account and risk of the Company are recorded on trade date. Customers' securities transactions are reported on a settlement date basis (normally the third business day following the transaction) with related commission income and expenses reported on a trade date basis. As a broker-dealer, the Corporation values marketable securities at market value and securities not readily marketable at fair value as determined by management. The resulting unrealized gains and losses are included as revenues from principal transactions. First Albany Companies Inc. also purchases securities for investment purposes and, as a non-broker-dealer, classifies them as trading securities and values them at market value, unless they are restricted from being sold, in which case they are valued at cost. First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Resale and Repurchase Agreements - -------------------------------- Transactions involving purchases of securities under agreements to resell or sales of securities under agreements to repurchase are treated as collateralized financing transactions and are recorded at their contracted resale or repurchase amounts plus accrued interest. It is the policy of the Company to obtain possession or control of collateral with a market value equal to or in excess of the principal amount loaned under resale agreements. Collateral is valued daily, and the Company may require counterparties to deposit additional collateral or return collateral pledged, when appropriate. At December 31, 1997 and December 31, 1996, the Company had entered into resale agreements in the amount of $5,299,000 and $2,869,000, respectively. At December 31, 1997 and December 31, 1996, the Company had entered into repurchase agreements with counterparties, in the amounts of $891,000 and $0, respectively. Securities-Lending Activities - ----------------------------- Securities borrowed and securities loaned are recorded at the amount of cash collateral advanced or received. Securities borrowed transactions require the Company to deposit cash or other collateral with the lender. With respect to securities loaned, the Company receives collateral in the form of cash or other collateral in an amount generally in excess of the market value of securities loaned. The Company monitors the market value of securities borrowed and loaned on a daily basis, with additional collateral obtained or refunded as necessary. Office Equipment and Leasehold Improvements - ------------------------------------------- Office equipment and leasehold improvements are stated at cost less accumulated depreciation of $15,624,000 at December 31, 1997, $11,682,000 at December 31, 1996, and $10,513,000 at December 31, 1995 (unaudited). Depreciation is provided on a straight-line basis over the shorter of the estimated useful life of the asset (3 to 5 years) or the term of the lease. Statement of Cash Flows - ----------------------- For purposes of the statement of cash flows, the Company has defined cash equivalents as highly liquid investments, with original maturities of less than 90 days that are not segregated under federal regulations or held for sale in the ordinary course of business. Investment Banking - ------------------ Investment banking revenues include gains, losses and fees, net of syndicate expenses, arising from securities offerings in which the Company acts as an underwriter or agent. Investment banking revenues also include fees earned from providing merger, acquisition and financial advisory services. Investment banking management fees are recorded on offering date, sales concessions on trade date and underwriting fees at the time the underwriting is completed and the income is reasonably determinable. Income Taxes - ------------ The amount of current taxes payable is recognized as of the date of the financial statements, utilizing currently enacted tax laws and rates. Deferred income taxes are recognized for the future tax consequences which are attributed to differences between the financial statement and tax basis of existing assets and liabilities. First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Earnings per Common Share - ------------------------- Earnings per share is presented in accordance with Financial Accounting Standards No. 128 - "Earnings Per Share." This statement which is effective for financial statements issued for periods ending after December 15, 1997, simplifies the computation of earnings per share (EPS) by replacing the "primary" EPS requirement with a "basic" EPS computation based upon weighted-average shares outstanding. The "dilutive" EPS computation is consistent with that of "basic" EPS while giving effect to all dilutive potential common shares that were outstanding during the period. Three-month transition period December 31, December 31, December 31, September 29, 1997 1996 1995 1995 - --------------------------------------------------------------------------------- Net Income $ 1,956 $ 5,500 $ 1,553 $ 3,350 - --------------------------------------------------------------------------------- Weighted average shares for basic EPS 5,731 5,508 5,504 5,463 Effect of dilutive common equivalent shares 558 419 380 257 - -------------------------------------------------------------------------------- Weighted average shares and dilutive common equivalent shares for dilutive EPS 6,289 5,927 5,884 5,720 - --------------------------------------------------------------------------------- Basic EPS $ 0.34 $ 1.00 $ 0.28 $ 0.61 Dilutive EPS $ 0.31 $ 0.93 $ 0.26 $ 0.59 =================================================================================
All per share figures have been restated for all stock dividends declared. Reclassifications - ----------------- Certain amounts in the financial statements have been reclassified to conform with the 1997 presentation. NOTE 2. Receivables From and Payables To Brokers, Dealers, and Clearing Agencies Amounts receivable from and payable to brokers, dealers, and clearing agencies, other than correspondents, consists of the following: (In thousands of dollars) December 31, December 31, December 31, 1997 1996 1995 (unaudited) - ------------------------------------------------------------------------------------- Securities failed to deliver $ 4,421 $ 1,856 $ 3,893 Receivable from clearing agencies 3,338 - ------------------------------------------------------------------------------------- Total receivables $ 4,421 $ 1,856 $ 7,231 ===================================================================================== Securities failed to receive $ 2,955 $ 3,150 $ 3,281 - ------------------------------------------------------------------------------------- Total payables $ 2,955 $ 3,150 $ 3,281 =====================================================================================
First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 3. Receivables From and Payables To Customers Receivables from and payables to customers include amounts due on cash and margin transactions. Securities owned by customers are held as collateral for receivables. Such collateral is not reflected in the financial statements. Total unsecured and partly secured customer receivables were $341,000, $329,000, and $307,000 as of December 31, 1997, December 31, 1996, and December 31, 1995 (unaudited), respectively. An allowance for doubtful accounts, based upon specific identification, was recorded for $340,000, $304,000, and $219,000, as of December 31, 1997, December 31, 1996, and December 31, 1995 (unaudited), respectively. NOTE 4. Receivables From Others Amounts receivable from others as of: ================================================================================ (In thousands of dollars) December 31, December 31, December 31, 1997 1996 1995 (unaudited) - -------------------------------------------------------------------------------- Adjustment to record securities on a trade date basis, net $11,249 Others $ 7,760 $ 8,181 6,243 - -------------------------------------------------------------------------------- Total $ 7,760 $ 8,181 $17,492 ================================================================================
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, December 31, 1997 1996 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 agency obligations $ 18,296 $ 5,482 $ 6,124 $ 2,923 $ 7,149 $ 1,191 State and municipal bonds 94,642 57 137,223 4,976 63,882 231 Corporate obligations 4,646 1,065 9,486 824 2,997 796 Corporate stocks 3,061 1,836 2,171 1,352 5,982 2,189 Options 1 20 Not readily marketable securities, fair value 471 1,149 556 - ------------------------------------------------------------------------------------- $121,116 $ 8,440 $156,154 $ 10,075 $ 80,586 $ 4,407 =====================================================================================
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. First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 6. Investments At December 31, 1997 the Company owned approximately 2,037,000 common shares (35% of the shares outstanding) of Mechanical Technology Incorporated (MTI). The Company's investment in MTI is recorded under the equity method and approximated $3,616,000, which included goodwill of approximately $783,000 which is being amortized over ten years. The Company's equity in MTI's net income, recorded on a one-quarter delay basis, was $1,168,000 for the year ended December 31, 1997 and related primarily to MTI's extinguishment of debt (reported as an extraordinary gain) and gain on sale of a division/subsidiary. For the three month period ended December 31, 1997, MTI reported an unaudited loss of approximately $1.6 million. The Company's equity in MTI's loss will be recorded in the quarter ending March 27, 1998. For the year ended December 31, 1996, the Company's equity in MTI's net income was $555,000. The following presents summarized financial information of MTI for the year ended September 30,1997: ============================================== Assets $14,756,000 Liabilities 6,543,000 ---------------------------------------------- Shareholder's equity $ 8,213,000 ============================================== ============================================== Revenues $31,980,000 Operating income 580,000 Gain on sale of division/subsidiary 2,012,000 Income before extraordinary items and income taxes 2,127,000 Gain on extinguishment of debt, net of taxes 2,507,000 Net income 4,520,000 ==============================================
At December 31, 1997, the aggregate market value of the Company's shares in MTI was $8,147,000. Under the equity method, the market value of MTI's stock is not included in the calculation of the Company's investment. At December 31, 1997, the Company owned 155,000 shares of META Group, Inc. The fair market value of this investment was $3,410,000. During the year ended December 31, 1997 the Company has recorded a realized gain of $770,000 and net unrealized gains of $117,000 with respect to this investment. The Company recorded an unrealized gain of $2.3 million for the year ended December 31, 1996. NOTE 7. Bank Loans Short-term bank loans are made under a variety of committed and uncommitted bank lines of credit which are limited to financing securities eligible for collateralization. This includes Company owned securities and certain customer owned securities purchased on margin, subject to certain regulatory formulas. These loans bear interest at fluctuating rates based primarily on the Federal Funds interest rate. The weighted average interest rates on these loans were 6.1%, 5.9%, and 5.7% at December 31, 1997, December 31, 1996, and December 31, 1995, respectively. Short-term bank loans were collateralized by Company owned securities of $75,370,000 and customers' margin account securities of $43,622,000 at December 31, 1997. A note for $3,208,333, which is collateralized by fixed assets, is payable in monthly principal payments of $114,583 and accrued interest. Interest is at the 90-day U.S. Treasury Securities rate (4.85% at December 31, 1997) plus 2.5%. The note matures April 1, 2000. First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) A note for $4,062,500, is collateralized by fixed assets and is payable in monthly principal payments of $104,167 plus interest. The interest rate is 2% over the 30-day London InterBank Offered Rate ("LIBOR") (5.71875 plus 2% on December 31 ,1997). One of the more significant covenants requires First Albany Corporation to maintain a minimum net capital (as defined by Rule 15c3-1 of the Securities and Exchange Commission) equal to three times the required minimum net capital. The required minimum net capital as of December 31, 1997 was $3,935,000 . The amount of net capital as of December 31, 1997 was $18,605,000. This note matures on March 27, 2001. Future annual principal loan repayment requirements as of December 31, 1997 are as follows: =========================================== (In thousands of dollars) ------------------------------------------- 1998 $2,625 1999 2,625 2000 1,708 2001 313 ------------------------------------------- Total $7,271 =========================================== NOTE 8. Obligations under Capitalized Leases The Company entered into capital leases for office equipment. The following is a schedule of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of December 31, 1997: ================================================ (In thousands of dollars) ------------------------------------------------ 1998 $ 917 1999 919 2000 888 2001 650 2002 211 ------------------------------------------------ Total Minimum Lease Payments 3,585 Less: Amount Representing Interest 497 ------------------------------------------------ Present Value of Minimum Lease Payments $3,088 ================================================ NOTE 9. Payables To Others Amounts payable to others as of: (In thousands of dollars) December 31, December 31, December 31, 1997 1996 1995 (unaudited) - -------------------------------------------------------------------------------- Adjustment to record securities on a trade date basis, net $ 23,737 $ 39,401 Borrowing under line-of-credit agreements 10,793 13,292 $ 1,300 Others 2,671 3,922 3,700 - -------------------------------------------------------------------------------- Total $ 37,201 $ 56,615 $ 5,000 ================================================================================
First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) For proprietary securities transactions, amounts receivable and payable for securities transactions that have not reached their contractual settlement date are recorded net on the statement of financial condition. NOTE 10. Subordinated Debt During 1997, the Company increased its subordinated debt by $2,500,000. This debt bears interest at 8.75%. Interest is paid monthly with the principal amount due at maturity on December 31, 2002. The lender has the right to exercise stock options on 26,891 shares of the Company's stock at $18.594 per share. This right expires December 31, 2002. The Company also has an additional subordinated debt of $5,000,000 which bears interest at 9.25%. Interest is paid monthly with the principal amount due at maturity on December 31, 2002. The lender has the right to exercise stock options on 88,200 shares of the Company's stock at $11.34 per share. This right expires December 31, 2002. Both loan agreements include restrictive financial covenants. One of the more significant covenants requires the Company to maintain a minimum net capital (as defined by Rule 15c3-1 of the Securities and Exchange Commission) equal to three times the required net capital. The amount of required net capital as of December 31, 1997 was $3,935,000. The amount of net capital as of December 31, 1997 was $18,605,000. NOTE 11. Stockholders' Equity During 1997, the Company declared and paid four quarterly cash dividends totaling $0.20 per share of common stock, and also declared and issued two 5% common stock dividends. In January 1998, the Board of Directors declared the regular quarterly cash dividend of $0.05 per share payable on February 26, 1998, to shareholders of record on February 12, 1998. NOTE 12. Income Taxes Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable for future years to differences between the financial statement and tax basis of existing assets and liabilities. The effect of tax rate changes on deferred taxes is recognized in the income tax provision in the period that includes the enactment date. The components of income taxes are: ======================================================================================= Three-Months (In thousands of dollars) December 31, December 31, December 31, September 29, 1997 1996 1995 1995 - --------------------------------------------------------------------------------------- Federal Current $ (956) $ 2,455 $ 260 $ 2,051 Deferred 1,642 (3) 416 (904) State and local Current 181 991 82 1,097 Deferred 609 149 171 (374) - --------------------------------------------------------------------------------------- Total income taxes $ 1,476 $ 3,592 $ 929 $ 1,870 =======================================================================================
First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The reasons for the difference between the expected income tax expense using the federal statutory rate and the income tax expense are as follows: Three-Months (In thousands of dollars) December 31, December 31, December31, September 29, 1997 1996 1995 1995 - -------------------------------------------------------------------------------------------- Income taxes at federal statutory rate $ 1,167 $ 3,092 $ 844 $ 1,775 State and local income taxes, net of federal income taxes 439 753 167 477 Tax-exempt interest income, net (405) (420) (126) (514) Non-deductible expenses 275 167 44 132 - -------------------------------------------------------------------------------------------- Total income taxes $ 1,476 $ 3,592 $ 929 $ 1,870 ============================================================================================
The temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows: =========================================================================== (In thousands of dollars) December 31, December 31, December 31, 1997 1996 1995 (unaudited) --------------------------------------------------------------------------- Receivables $ 149 $ 128 $ 67 Securities held for investment (915) (964) (262) Fixed assets 9 486 309 Deferred compensation 577 1,631 1,633 Other (600) 190 (130) --------------------------------------------------------------------------- Total deferred tax assets (liablities) $ (780) $1,471 $1,617 ===========================================================================
The Company has not recorded a valuation allowance for deferred tax assets since income in the carryback period is sufficient to realize the benefit of future deductions. NOTE 13. Employee Benefit Plans The Company maintains a deferred profit sharing plan (Internal Revenue Code Section 401(k) Plan) which permits eligible employees to defer a percentage of their compensation. Company contributions to eligible participants may be made at the discretion of the Board of Directors. During the years ended December 31, 1997, December 31, 1996, the transitional period ending December 31, 1995, and the year ended September 29, 1995, the Company contributed $107,000, $103,000, $0, and $140,000, respectively. The Company also maintains an Employee Stock Bonus Plan (Internal Revenue Code Section 401(a)) which permits eligible employees to contribute up to 8% of their compensation on an after-tax basis. The Company makes matching contributions equal to a percentage of each employee's contributions. Company contributions vest in accordance with the Plan and are tax deferred until withdrawal. Employee and Company contributions are invested solely in the common stock of the Company. During the years ended December 31, 1997, December 31, 1996, the transitional period ending December 31, 1995, and the year ended September 29, 1995, the Company contributed $788,000, $617,000, $163,000, and $408,000, respectively. First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 14. Incentive Plans In 1982, the Company established a Stock Incentive Plan (the "1982 Plan") which, as amended by stockholders in 1987, authorized issuance of options to officers and key employees of the Company to purchase up to 800,000 shares of common stock. On February 27, 1989, stockholders approved adoption of the First Albany Companies Inc. 1989 Stock Incentive Plan (the "1989 Plan"). Coincident with the adoption of the 1989 Plan, the 1982 Plan was terminated. Options previously granted under the 1982 Plan remain valid in accordance with the terms of the grant of such options; however, the grant of new options under the 1982 Plan was ended. Both the 1982 Plan and 1989 Plan enable the Company to grant incentive stock options (ISOs) which meet the requirements of Section 422A of the Internal Revenue Code of 1954, as amended, and nonqualified stock options (NSOs). ISOs are granted at prices not less than fair value at the date of the grant; NSOs may be issued at prices less than fair market value. ISOs and NSOs may not have a term of more than ten years. Under certain conditions, the Company is required to purchase shares issued under this Plan at prices ranging from the original exercise or award price to the greater of the then book or market value. If NSOs are exercised, the difference between the option price and the selling price will be recognized as an expense in the income statement. In addition, under the 1989 Plan, stock appreciation rights (SARs) may be granted in tandem with ISOs or NSOs. SARs may be exercised only if the related options (or portions thereof) are surrendered and at such time as the fair market value of the shares underlying the option exceeds the option price for such shares. Upon exercise of SAR and surrender of the related option, an employee will be entitled to receive an amount equal to the excess of the fair market value of one share at the time of such surrender over the option price per share specified in such option times the number of such shares called for by the option, or portion thereof, which is so surrendered. Payment may be made in cash, shares of common stock, or a combination thereof. SARs may not be exercised before six months from date of grant. As of December 31, 1997, no SARs have been granted. Option transactions for the 39 month period ended December 31, 1997 under the 1982 Plan were as follows: (all are ISOs) Shares Weighted Average Subject Exercise to Option Price - -------------------------------------------------------------------------------- Balance at September 30, 1994 31,600 $ 4.95 Options granted 2,908 4.60 Options exercised (11,605) 4.76 - -------------------------------------------------------------------------------- Balance at September 29, 1995 22,903 4.47 Options granted 1,145 4.08 Options exercised (4,923) 4.26 - -------------------------------------------------------------------------------- Balance at December 31, 1995 19,125 4.04 Options granted 1,959 3.75 Options exercised (4,022) 3.55 - -------------------------------------------------------------------------------- Balance at December 31, 1996 17,062 3.73 Options granted 967 3.15 Options exercised (8,654) 4.04 - -------------------------------------------------------------------------------- Balance at December 31, 1997 9,375 $ 3.07 ================================================================================
There were no shares available for grants of options under the 1982 Plan at December 31, 1997; December 31, 1996; December 31, 1995; and September 29, 1995. During calendar year 1997, the First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Company declared two 5% common stock dividends. These dividends resulted in an additional 967 options authorized. All shares subject to options were exercisable at the end of each period presented. At December 31, 1997, options outstanding and exercisable under the 1982 Plan had an average exercise price of $3.07 and an average remaining contractual life of 1.01 years. Option transactions for the 39 month period ended December 31, 1997 under the 1989 Plan were as follows: (all are ISOs) Shares Weighted Average Subject Exercise to Option Price - -------------------------------------------------------------------------------- Balance at September 30, 1994 567,483 $ 5.86 Options granted 199,454 7.28 Options exercised (46,646) 4.59 Options terminated (479) 4.51 - -------------------------------------------------------------------------------- Balance at September 29, 1995 719,812 5.85 Options granted 47,569 6.06 Options exercised (1,447) 7.14 - -------------------------------------------------------------------------------- Balance at December 31, 1995 765,934 5.60 Options granted 262,441 8.51 Options exercised (132,255) 4.39 Options terminated (51,359) 6.59 - -------------------------------------------------------------------------------- Balance at December 31, 1996 844,761 6.11 Options granted 681,161 10.03 Options exercised (164,230) 5.15 Options terminated (50,616) 8.40 - -------------------------------------------------------------------------------- Balance at December 31, 1997 1,311,076 $ 7.46 ================================================================================
During calendar year 1997, the Company declared two 5% common stock dividends. These dividends resulted in an additional 153,143 options authorized. There were 283,023; 760,402; 337,501; and 332,456 shares available for grants of options at December 31, 1997, December 31, 1996, December 31, 1995, and September 29, 1995, respectively. The following table summarizes information about stock options outstanding under the 1989 Plan at December 31, 1997: -----------Outstanding--------- ----Exercisable------ Exercise Average Average Price Average Life Exercise Exercise Range Shares (years) Price Shares Price $3.18-$3.95 330,825 3.44 $3.46 330,825 $3.46 $5.88-$6.70 198,368 5.44 6.63 191,332 6.66 $8.42-$10.20 781,883 7.73 9.36 80,176 8.78 - -------------------------------------------------------------------------------- 1,311,076 6.30 $7.46 602,333 $5.19 ================================================================================ At December 31, 1997 1,311,076 options were outstanding of which 828,744 were ISOs and 482,332 were NSOs. The First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) At December 31, 1997, 602,333 options with an average exercise price of $5.19 were exercisable; at December 31, 1996, 581,290 options with an average exercise price of $5.01 were exercisable; at December 31, 1995, 634,204 options with an average exercise price of $5.27 were exercisable; and at September 29, 1995, 557,442 options with an average exercise price of $5.41 were exercisable. The Company has elected to follow Accounting Principals Board No. 25 "Accounting for Stock Issued to Employees" ("APB 25") in accounting for the stock option plans. Under APB 25, no compensation cost has been recognized in calendar year 1997, calendar year 1996, short period 1995 and fiscal year 1995. Had compensation cost and fair value been determined pursuant to Financial Accounting Standard No. 123 (FAS 123) "Accounting for Stock-Based Compensation", net income would have decreased from $1,956,000 to $1,557,000 in calendar year 1997, $5,500,000 to $5,388,000 in calendar year 1996, $1,553,000 to $1,530,000 in the transitional period 1995 and from $3,350,000 to $3,281,000 in fiscal year 1995. Basic earnings per share would decrease from $0.34 to $0.27 in calendar year 1997, $1.00 to $0.98 in calendar year 1996, was unchanged in the short year 1995 and from $0.61 to $0.60 in fiscal year 1995. Dilutive earnings per share would decrease from $0.31 to $0.25 in calendar year 1997, $0.93 to $0.91 in calendar year 1996, was unchanged in the short year 1995 and from $0.59 to $0.57 in fiscal year 1995. The initial impact of FASB 123 on pro forma earnings per share may not be representative of the effect on income in future years because options vest over several years and additional option grants may be made each year. The weighted average fair value of options granted during 1997, 1996 and 1995 under FAS 123 was $5.53, $3.21 and $2.45, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option- pricing model with the following weighted average assumptions used for grants: dividend yield of 1.5% for 1997, and 2.76% for both 1996 and 1995; expected volatility of 59.4% for 1997, and 54.7% for both 1996 and 1995; risk-free interest rates of 5.50% in 1997, 5.17% to 6.26% in 1996, and 5.38% to 6.66% in 1995; and expected lives of 5.0, 2.6 and 1.2 years for 1997, 1996 and 1995, respectively. In 1992, the Company established the First Albany Companies Inc. Restricted Stock Plan which authorized the issuance of up to 390,805 shares of common stock (adjusted for all stock dividends) to certain key employees of the Company. Awards under this plan expire over a four-year period after the award date and are subject to certain restrictions including continued employment. As of December 31, 1997, December 31, 1996 and December 31, 1995, 153,229, 105,226 and 36,880 shares respectively, have been awarded under this plan. The fair market value of the awards will be amortized over the period in which the restrictions are outstanding. The Company has various other incentive programs which are offered to eligible employees. These programs consist of cash incentives and deferred bonuses. Amounts awarded vest over periods ranging from three to five years. Costs are amortized over the vesting period and aggregated $1,271,000 in 1997, $1,983,000 in 1996, $395,000 in the transitional period ending December 31, 1995, and $1,343,000 for the year ended September 29, 1995. NOTE 15. Commitments and Contingencies The Company's headquarters, sales offices, and certain office and communication equipment are leased under noncancellable operating leases, which expire at various times through 2008. Future minimum annual rentals payable are as follows: The First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ============================== (In thousands of dollars) 1998 $ 7,500 1999 7,575 2000 5,459 2001 4,896 2002 3,431 Thereafter 15,937 ------------------------------ Total $44,798 ==============================
Annual rental expense including utilities for the year ended December 31, 1997, December 31, 1996, the transitional period ending December 31, 1995, and the fiscal year ended September 29, 1995 approximated $5,565,000, $4,175,000, $906,000, and $3,630,000, respectively. In the normal course of business, the Company has been named a defendant, or otherwise has possible exposure, in several claims. Certain of these are class actions which seek unspecified damages which could be substantial. Although there can be no assurance as to the eventual outcome of litigation in which the Company has been named as a defendant or otherwise has possible exposure, the Company has provided for those actions it believes are likely to result in adverse dispositions. Although further losses are possible, the opinion of management, based upon the advice of its attorneys and general counsel, is that such litigation will not, in the aggregate, have a material adverse effect on the Company's liquidity or financial position, although it could have a material effect on quarterly or annual operating results in the period in which it is resolved. The Corporation has been named in a lawsuit relating to certain real estate investments (in which the provider of these investments was also named) for which the Corporation acted as placement agent. Plaintiff claims damages of approximately $16 million and the right to treble damages under the Indiana RICO statute. The Corporation intends to vigorously defend this action. Management believes that the risk of any possible liability to the Corporation cannot be currently estimated. At this time, based on advice of counsel, management believes that resolution of this matter will not have a material effect on the inancial position of the Corporation, although it may have a material effect on the results of operations in the period in which it is resolved. The case is currently scheduled for trial in early 1999. The Company is contingently liable under bank stand-by letter of credit agreements, executed in connection with security clearing activities, totaling $3,200,000 at December 31, 1997. In December 1997, the Company entered into an agreement guaranteeing a note for $800,000 which is collateralized by assets where the fair value approximates $700,000. NOTE 16. Net Capital Requirements The Corporation is subject to the SEC's Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital. The Corporation has elected to use the alternative method, permitted by the Rule, which requires that the Corporation maintain a minimum net capital equal to 2 percent of aggregate debit balances arising from customer transactions, as defined. At December 31, 1997, the Corporation had net capital of $18,605,000 which equaled 9.5% of aggregate debit balances and $14,670,000 in excess of required minimum net capital. First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) NOTE 17. Financial Instruments with Off-Balance-Sheet Risk In the normal course of business, the Company's customer and correspondent clearing activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose the Company to off-balance-sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations, and the Company has to purchase or sell the financial instrument underlying the contract at a loss. The Company's customer securities activities are transacted on either a cash or margin basis. In margin transactions, the Company extends credit to its customers, subject to various regulatory and internal margin requirements, collateralized by cash and securities in the customers' accounts. In connection with these activities, the Company executes and clears customer transactions involving the sale of securities not yet purchased, substantially all of which are transacted on a margin basis subject to individual exchange regulations. Such transactions may expose the Company to significant off-balance-sheet risk in the event margin requirements are not sufficient to fully cover losses that customers may incur. In the event the customer fails to satisfy its obligations, the Company may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customer's obligations. The Company seeks to control the risks associated with its customer activities by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company monitors required margin levels daily and, pursuant to such guidelines, requires the customer to deposit additional collateral, or to reduce positions, when necessary. The Company's customer financing and securities settlement activities require the Company to pledge customer securities as collateral in support of various secured financing sources such as bank loans and securities loaned. In the event the counterparty is unable to meet its contractual obligation to return customer securities pledged as collateral, the Company may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy its customer obligations. The Company controls this risk by monitoring the market value of securities pledged on a daily basis and by requiring adjustments of collateral levels in the event of excess market exposure. In addition, the Company establishes credit limits for such activities and monitors compliance on a daily basis. In addition, the Company has sold securities that it does not currently own and therefore will be obligated to purchase such securities at a future date. The Company has recorded these obligations in the financial statements at the market values of the related securities and will incur a loss if the market value of the securities increases. The Company acts as a manager and co-manager in underwriting security transactions. In this capacity, there is risk if the potential customer does not fulfill the obligation to purchase the securities. This risk is mitigated by the fact that the Company deals primarily with institutional investors. In most cases, no one institutional customer subscribes to the majority of the securities being sold, thereby spreading the risk for this type of loss among many established customers. The Company also maintains credit limits for these activities and monitors compliance with applicable limits and industry regulations on a daily basis. NOTE 18. Concentrations of Credit Risk The Company is engaged in various trading and brokerage activities whose counterparties primarily include broker-dealers, banks, and other financial institutions. In the event counterparties do not fulfill their obligations, the Company may be exposed to risk. The risk of default depends on the credit worthiness of the counterparty or issuer of the instrument. The Company seeks to control credit risk by First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) following an established credit approval process, monitoring credit limits, and requiring collateral where appropriate. The Company purchases debt securities and may have significant positions in its inventory subject to market and credit risk. In order to control these risks, security positions are monitored on at least a daily basis. Should the Company find it necessary to sell such a security, it may not be able to realize the full carrying value of the security due to the significance of the position sold. The Company reduces its exposure to changes in securities valuation with the use of municipal bond index futures contracts. (See Note 20.) NOTE 19. Fair Value of Financial Instruments The financial instruments of the Company are reported on the statement of financial condition at market or fair value or at carrying amounts that approximate fair value, due to the short term nature of the financial instruments, with the exception of its investment in MTI (Note 6) and its subordinated debt. The fair value of subordinated debt at December 31, 1997 approximates its carrying value based on current rates available. NOTE 20. Derivative Financial Instruments The Company does not engage in the proprietary trading of derivative securities with the exception of highly liquid index futures contracts and options. These index futures contracts and options are used to hedge securities positions in the Company's inventory. Gains and losses on these financial instruments are included as revenues from principal transactions. Trading profits and losses relating to these financial instruments were as follows: (In thousands of dollars) Year Ended Year Ended Three-Months Year Ended Dec. 31, 1997 Dec. 31, 1996 Dec. 31,1995 Sept.29, 1995 - -------------------------------------------------------------------------------------------- Trading Profits-State and Municipal Bonds $ 6,840 $ 2,032 $ 2,345 $ 5,068 Index Futures Hedging (2,061) 594 (457) (1,350) Trading Profits-Corporate Stocks 1,159 Options (206) - -------------------------------------------------------------------------------------------- Net Revenues $ 4,779 $ 2,626 $ 1,888 $ 4,671 ============================================================================================
As of December 31, 1997, the contractual or notional amounts related to these financial instruments were as follows: ================================================================================ (In thousands of dollars) Average Notional or Year End Notional or Contract Market Value Contract Market Value - -------------------------------------------------------------------------------- Index Futures Contracts ($12,401) ($14,994) - -------------------------------------------------------------------------------- As of December 31, 1996, the contractual or notional amounts related to these financial instruments were as follows: ================================================================================ (In thousands of dollars) Average Notional or Year End Notional or Contract Market Value Contract Market Value - -------------------------------------------------------------------------------- Index Futures Contracts ($7,750) ($5,881) - -------------------------------------------------------------------------------- First Albany Companies Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) As of December 31, 1995, the contractual or notional amounts related to these financial instruments were as follows: ================================================================================ (In thousands of dollars) Average Notional or Year End Notional or Contract Market Value Contract Market Value - -------------------------------------------------------------------------------- Index Futures Contracts ($4,929) ($10,668) - -------------------------------------------------------------------------------- The contractual or notional amounts related to these financial instruments reflect the volume and activity and do not reflect the amounts at risk. The amounts at risk are generally limited to the unrealized market valuation gains on the instruments and will vary based on changes in market value. Futures contracts are executed on an exchange, and cash settlement is made on a daily basis for market movements. Open equity in the futures contracts are recorded as receivables from clearing organizations. The settlement of these transactions is not expected to have a material adverse effect on the financial condition of the Company. NOTE 21. New Accounting Standards Financial Accounting Standards Board No. 125 - "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement, which would be effected for all transfers after December 31, 1997, addresses several matters that have a significant impact of the Broker/Dealer industry. It addresses how and when to record transferred assets, transfers of partial interest, servicing of financial assets, securitizations, transfers of sales-type and direct financing lease receivables, securities lending transactions, repurchase agreements including "dollar rolls," "wash sales," loan syndications and participations, risk participations in banker's acceptances, factoring arrangements, transfer of receivables with recourse, and extinguishment of liabilities, collateral, repurchase agreements and how to amortize servicing assets and liablities. Management has reviewed this statement and has determined that it has no material effect on the presentation of the consolidated financial statements. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive Income" ("SFAS 130") and "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), respectively (collectively, the "Statements"). The Statements are effective for fiscal years beginning after December 15, 1997. SFAS 130 establishes standards for reporting of comprehensive income and its components in annual financial statements. SFAS 131 establishes standards for reporting financial and descriptive information about an enterprise's operating segments in its annual financial statements and selected segment information in interim financial reports. Reclassification or restatement of comparative financial statements or financial information for earlier periods is required upon adoption of SFAS 130 and SFAS 131, respectively, Application of the Statements' requirements is not expected to have a material impact on the Company's consolidated financial position, results of operations or earnings per share data as currently reported. FIRST ALBANY COMPANIES INC. SUPPLEMENTARY DATA SELECTED QUARTERLY FINANCIAL DATA (Unaudited) (In thousands of dollars, except per share data) Quarters Ended - -------------------------------------------------------------------------------- 1997 - Calendar Year Mar. 28 June 27 Sep. 26 Dec. 31 - -------------------------------------------------------------------------------- Total revenues $ 42,059 $ 45,770 $ 49,741 $ 55,402 Interest expense (8,424) (9,516) (10,172) (10,503) - -------------------------------------------------------------------------------- Net revenues 33,635 36,254 39,569 44,899 Total expenses (excluding interest) (33,605) (35,933) (38,418) (43,499) - -------------------------------------------------------------------------------- Income before income taxes 30 321 1,151 1,400 Income tax expense 36 (130) (545) (612) - -------------------------------------------------------------------------------- Income before extraordinary items 66 191 606 788 Extraordinary gain (net of taxes) 305 - -------------------------------------------------------------------------------- Net income $ 371 $ 191 $ 606 $ 788 ================================================================================ Net income per common and common equivalent share: Basic $ 0.07 $ 0.03 $ 0.11 $ 0.14 Dilutive $ 0.06 $ 0.03 $ 0.09 $ 0.12 Quarters Ended - -------------------------------------------------------------------------------- 1996 - Calendar Year Mar. 29 June 28 Sep. 27 Dec. 31 - -------------------------------------------------------------------------------- Total revenues $ 40,290 $ 42,213 $ 37,951 $ 47,738 Interest expense (4,954) (5,173) (5,972) (9,932) - -------------------------------------------------------------------------------- Net revenues 35,336 37,040 31,979 37,806 Total expenses (excluding interest) (32,479) (34,460) (30,375) (35,756) - -------------------------------------------------------------------------------- Income before income taxes 2,857 2,580 1,604 2,050 Income tax expense (1,103) (995) (673) (821) - -------------------------------------------------------------------------------- Net income $ 1,754 $ 1,585 $ 931 $ 1,229 ================================================================================ Net income per common and common equivalent share: Basic $ .31 $ .29 $ .17 $ .22 Dilutive $ .29 $ .27 $ .16 $ .21 Three months ended - -------------------------------------------------------------------------------- 1995 - Transitional Period Dec. 31 - -------------------------------------------------------------------------------- Total revenues $ 37,404 Interest expense (6,631) - -------------------------------------------------------------------------------- Net revenues 30,773 Total expenses (excluding interest) (28,291) - -------------------------------------------------------------------------------- Income before income taxes 2,482 Income tax expense (929) - -------------------------------------------------------------------------------- Net income $ 1,553 ================================================================================ Net income per common and common equivalent share: Basic $ .28 Dilutive $ .26
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 14, 1998. Such information is incorporated herein by reference to the proxy statement. Information (not included in the Company's definitive proxy statement for the 1998 Annual Meeting of Stockholders) regarding certain executive officers of the Company is as follows: Timothy R. Welles, age 38, joined the Company in July, 1997 as Vice President and Chief Financial Officer. Prior to joining the Company, Mr. Welles was Executive Vice President, Chief Operating Officer and a member of the Board of Directors of InteliData Technologies Corp. and its predecessor company, Colonial Data Technologies Corp., from February 1996 through July 1997. Prior to that, Mr. Welles was Senior Vice President - Investment Banking at First Albany Corporation since 1993. Stephen P. Wink, age 39, joined First Albany in 1996. He has been Secretary and General Counsel of the Company since August 1997. Mr. Wink has been Senior Vice President, General Counsel and Secretary of First Albany Corporation since 1996, and was Assistant Secretary of the Company from 1996 through July 1997. Before joining First Albany, Mr. Wink was an attorney for the law firm of Cleary, Gottlieb, Steen & Hamilton since prior to 1993. Item 11. Executive Compensation. - -------------------------------- The information required by this item will be contained under the caption "Compensation of Executive Officers and Directors" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on or about May 14, 1998. Such information is incorporated herein by reference to the proxy statement. Item 12. Security Ownership of Certain Beneficial Owners and Management. - ------------------------------------------------------------------------ The information required by this item will be contained under the caption "Stock Ownership of Principal Owners and Management" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on or about May 14, 1998. Such information is incorporated herein by reference to the proxy statement. Item 13. Certain Relationships and Related Transactions. - -------------------------------------------------------- The information required by this item will be contained under the caption "Certain Relationships and Related Transactions" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on or about May 14, 1998. Such information is incorporated herein by reference to the proxy statement. PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K. - ------------------------------------------------------------------------- (a) (1) The following financial statements are included in Part II, Item 8: Report of Independent Accountants Financial Statements: Consolidated Statements of Income For the Calendar Years Ended December 31, 1997, and December 31, 1996; the three-month Transition Period ended December 31, 1995; and the Fiscal Year Ended September 29, 1995 Consolidated Statements of Financial Condition as of December 31, 1997, December 31, 1996 and December 31, 1995 (unaudited) Consolidated Statements of Changes in Stockholders' Equity for the Calendar Years Ended December 31, 1997 and December 31, 1996; the three-month Transition Period ended December 31, 1995, and the Fiscal Year Ended September 29, 1995 Consolidated Statements of Cash Flows for the Calendar Years Ended December 31, 1997 and December 31, 1996; the Three-month Transition Period ended December 31, 1995; and the Fiscal Year Ended September 29, 1995, Notes to Consolidated Financial Statements (2) The following financial statement schedule for the periods 1997, 1996, and 1995 are submitted herewith: Schedule II-Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (3) Exhibits included herein: Exhibit Number Description - ------ ----------- 3.1 Certificate of Incorporation of First Albany Companies Inc. (filed as Exhibit No. 3.1 to Registration Statement No. 33-1353). 3.2 By-laws of First Albany Companies Inc. (filed as Exhibit No. 3.2 to Registration Statement No. 33-1353). 3.2a By-laws of First Albany Companies Inc., as amended (as filed as Exhibit No. 3.2a to Form 10-K for the fiscal year ended September 24, 1993). 3.2b By-laws of First Albany Companies Inc., as amended (as filed as Exhibit No. 3.2b to Form 10-K for the calendar year ended December 31, 1996). 3.2c By-laws of First Albany Companies Inc., as amended (restated for purpose of this filing). 4 Specimen Certificate of Common Stock, par value $.01 per share (filed as Exhibit No. 4 to Registration Statement No. 33-1353). 10.6 Deferred Profit Sharing Plan of First Albany Corporation effective October 1, 1982, as amended by shareholder vote, dated January 19, 1987 (filed as Exhibit 10.6 to Form 10-K for the fiscal year ended September 30, 1986). 10.7 Incentive Stock Option Plan of First Albany Corporation effective October 1, 1982, as amended by shareholder vote, dated January 19, 1987 (filed as Exhibit 10.7 to Form 10-K for the fiscal year ended September 30, 1987). 10.10 First Albany Companies Inc. Stock Bonus Plan effective July 8, 1987 (filed as Registration Statement No. 33-15220 (Form B) dated July 8, 1987). 10.10a First Albany Companies Inc. Stock Bonus Plan, as amended, effective June 25, 1990 (filed as Registration Statement No. 33-35166 (Form S-8) dated June 25, 1990). 10.10b First Albany Companies Inc. Stock Bonus Plan, as amended, effective February 4, 1994 (filed as Registration Statement 33-52153 (Form S-8) dated February 4, 1994). 10.10c First Albany Companies Inc. Stock Bonus Plan, as amended, effective June 2, 1995 (filed as Registration Statement 33-59855 (Form S-8) dated June 2, 1995). 10.10d First Albany Companies Inc. Stock Bonus Plan, as amended, effective June 2, 1995 (filed as Registration Statement 333-18645 (Form S-8) dated December 23, 1996). 10.12 First Albany Companies Inc. 1989 Stock Incentive Plan effective February 27, 1989, as approved by shareholder vote dated February 27, 1989 (filed as Exhibit 10.12 to Form 10-K for the fiscal year ended September 30, 1989). 10.15 Lease dated June 12, 1992, between First Albany Companies Inc. and Olympia and York Limited Partnership for office space at 53 State Street, Boston, Massachusetts (filed as Exhibit 10.15 to Form 10-K for the fiscal year ended September 25, 1992). 10.16 The First Albany Companies Inc. Restricted Stock Plan as adopted by the Company on April 27, 1992 (filed as Exhibit 10.16 to Form 10-K for the fiscal year ended September 25, 1992). (3) Exhibits included herein: (continued) Exhibit Number Description 10.18 Sublease dated October 13, 1995 between First Albany Companies Inc. and KeyCorp for office facilities at 30 South Pearl Street, Albany, New York. (Filed as Exhibit 10.18 to Form 10K for fiscal year ended September 29, 1995). 10.19 Term Loan Agreement dated March 29, 1996 between First Albany Companies Inc. and OnBank Trust & Co. (Filed as Exhibit 10.19 to Form 10K for calendar year ended December 31,1996). 10.20 Subordinated Loan Agreement dated September 16, 1996 between First Albany Companies Inc. and Sharon M. Duker. (Filed as Exhibit 10.20 to Form 10K for calendar year ended December 31, 1996). 10.20a Subordinated Loan Agreement between First Albany Companies Inc. and Sharon M. Duker as amended effective December 23, 1997. 10.21 Master Equipment Lease Agreement dated September 25, 1996 between First Albany Companies Inc. and KeyCorp Leasing Ltd. (Filed as Exhibit 10.21 to Form 10K for calendar year ended December 31, 1996). 10.22 Lease dated March 21, 1996, between First Albany Companies Inc. and Mid-City Associates for office space at One Penn Plaza, New York, New York. (Filed as Exhibit 10.22 to Form 10K for calendar year ended December 31, 1996). 10.23 Subordinated Loan Agreement dated December 23, 1997 between First Albany Companies Inc. and Sharon M. Duker. 10.24 First Albany Companies Inc. Executive Officers Deferred Compensation Plan and First Albany Companies Inc. Investment Executive Deferred Compensation Plan effective January 7, 1998 (filed as Registration Statement No. 333-43825 (Form S-8) dated January 7, 1998). 11 Computation of per share earnings. 21 List of Subsidiaries of First Albany Companies Inc. 23 Consent of Coopers & Lybrand L.L.P. 27 Financial Data Schedule BD (b) Reports on Form 8-K: No reports on Form 8-K have been filed by the Registrant during the last quarter of the period covered by this report. (c) Exhibits: The exhibits to this report are listed in section (a)(3) of Item 14 above. (d) Financial Statement Schedules: The financial statement schedules filed with this report are listed in section (a)(2) of Item 14 above. FIRST ALBANY COMPANIES INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS PERIODS ENDED DECEMBER 31, 1997, DECEMBER 31, 1996, DECEMBER 31, 1995, AND SEPTEMBER 29, 1995 COL. A COL. B COL. C COL. D COL. E - -------------------------------------------------------------------------------- Additions Balance at Charged to Balance Beginning Costs and at End of Description of Period Expenses Deductions Period - -------------------------------------------------------------------------------- Allowance for doubtful accounts -- deducted from receivables from customers: Calendar Year 1997 $ 304,000 $ 120,000 $ 84,000 $ 340,000 Calendar Year 1996 $ 219,000 $ 120,000 $ 35,000 $ 304,000 Three Month Transition Period 1995 $ 125,000 $ 94,000 $ 0 $ 219,000 Fiscal Year 1995 $ 106,000 $ 120,000 $ 101,000 $ 125,000 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST ALBANY COMPANIES INC. By:/s/ GEORGE C. MCNAMEE --------------------- George C. McNamee, Chairman and Co-Chief Executive Officer Date: March 23, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Signature Title Date /s/ GEORGE C. MCNAMEE Chairman and Co-Chief March 23, 1998 - --------------------- Executive Officer George C. McNamee /s/ ALAN P. GOLDBERG President and Co-Chief March 23, 1998 - --------------------- Executive Officer Alan P. Goldberg /s/ TIMOTHY R. WELLES Chief Financial Officer March 23, 1998 - --------------------- (Prinicpal Accounting Officer) Timothy R. Welles /s/ HUGH A. JOHNSON, JR. Senior Vice President and Director March 23, 1998 - ------------------------ Hugh A. Johnson, Jr. Director , 1998 - ------------------------ Peter Barton /s/ J. ANTHONY BOECKH Director March 23, 1998 - --------------------- J. Anthony Boeckh /s/ WALTER M. FIEDEROWICZ Director March 23, 1998 - ------------------------- Walter M. Fiederowicz Director , 1998 - ------------------------ Daniel V. McNamee /s/ CHARLES L. SCHWAGER Director March 23, 1998 - ----------------------- Charles L. Schwager /s/ BENAREE P. WILEY Director March 23, 1998 - ----------------------- Benaree P. Wiley EX-11 2 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, December 31, September 29, 1997 1996 1995 1995 * All per share figures have been restated for all common stock dividends paid. EX-21 3 EXHIBIT 21 SUBSIDIARIES OF FIRST ALBANY COMPANIES INC. COMPANY NAME STATE OF INCORPORATION - ---------------- ---------------------- FIRST ALBANY CORPORATION NEW YORK FIRST ALBANY ASSET MANAGEMENT CORPORATION NEW YORK EX-23 4 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of First Albany Companies Inc. on Form S-8 related to the First Albany Companies Inc. Stock Bonus Plan (File No. 014140) of our report dated February 13, 1998, on our audits of the consolidated financial statements and financial statement schedule of First Albany Companies Inc. as of December 31, 1997 and 1996, and, for the years ended December 31, 1997 and 1996, the three months ended December 31, 1995, and the year ended September 29, 1995, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L. L. P. Albany, New York March 23, 1998 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of First Albany Companies Inc. on Form S-8 related to the First Albany Companies Inc. Executive Officers Deferred Compensation Plan and Investment Executives Deferred Compensation Plan (File No. 014140) of our report dated February 13, 1998, on our audits of the consolidated financial statements and financial statement schedule of First Albany Companies Inc. as of December 31, 1997 and 1996, and for the years ended December 31, 1997 and 1996, the three months ended December 31, 1995, and the year ended September 29, 1995 which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L. L. P. Albany, New York March 23, 1998 EX-27 5 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
BD YEAR DEC-31-1997 DEC-31-1997 $951 195,157 5,299 468,786 128,142 12,947 831,921 99,702 89,337 891 547,847 8,440 7,500 0 0 59 44,489 831,921 63,235 45,474 52,987 19,636 11,640 38,615 105,080 2,902 1,651 305 0 1,956 0.34 0.31 Prior periods restated to conform to Financial Accounting Standards No. 128- "Earnings per share". [PERIOD-TYPE] 9-MOS [FISCAL-YEAR-END] DEC-31-1997 [PERIOD-END] SEP-26-1997 [CASH] $ 321 [RECEIVABLES] 207,118 [SECURITIES-RESALE] 3,504 [SECURITIES-BORROWED] 587,132 [INSTRUMENTS-OWNED] 120,462 [PP&E] 13,246 [TOTAL-ASSETS] 955,158 [SHORT-TERM] 203,002 [PAYABLES] 60,837 [REPOS-SOLD] 5,031 [SECURITIES-LOANED] 606,583 [INSTRUMENTS-SOLD] 4,112 [LONG-TERM] 7,927 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [COMMON] 57 [OTHER-SE] 43,578 [TOTAL-LIABILITY-AND-EQUITY] 955,158 [TRADING-REVENUE] 47,246 [INTEREST-DIVIDENDS] 32,748 [COMMISSIONS] 38,347 [INVESTMENT-BANKING-REVENUES] 11,114 [FEE-REVENUE] 8,114 [INTEREST-EXPENSE] 28,112 [COMPENSATION] 73,183 [INCOME-PRETAX] 1,501 [INCOME-PRE-EXTRAORDINARY] 862 [EXTRAORDINARY] 305 [CHANGES] 0 [NET-INCOME] 1,167 [EPS-PRIMARY] 0.20 [EPS-DILUTED] 0.19 Prior periods restated to conform to Financial Accounting Standards No. 128- "Earnings per share". [PERIOD-TYPE] 6-MOS [FISCAL-YEAR-END] DEC-31-1997 [PERIOD-END] JUN-27-1997 [CASH] $ 1,314 [RECEIVABLES] 152,237 [SECURITIES-RESALE] 3,882 [SECURITIES-BORROWED] 538,785 [INSTRUMENTS-OWNED] 185,646 [PP&E] 13,608 [TOTAL-ASSETS] 924,020 [SHORT-TERM] 204,012 [PAYABLES] 76,264 [REPOS-SOLD] 5,132 [SECURITIES-LOANED] 559,711 [INSTRUMENTS-SOLD] 7,286 [LONG-TERM] 8,583 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [COMMON] 57 [OTHER-SE] 42,767 [TOTAL-LIABILITY-AND-EQUITY] 924,020 [TRADING-REVENUE] 31,080 [INTEREST-DIVIDENDS] 20,942 [COMMISSIONS] 23,668 [INVESTMENT-BANKING-REVENUES] 6,834 [FEE-REVENUE] 5,304 [INTEREST-EXPENSE] 17,940 [COMPENSATION] 46,968 [INCOME-PRETAX] 350 [INCOME-PRE-EXTRAORDINARY] 256 [EXTRAORDINARY] 305 [CHANGES] 0 [NET-INCOME] 561 [EPS-PRIMARY] 0.10 [EPS-DILUTED] 0.09 Prior periods restated to conform to Financial Accounting Standards No. 128- "Earnings per share". [PERIOD-TYPE] 3-MOS [FISCAL-YEAR-END] DEC-31-1997 [PERIOD-END] MAR-27-1997 [CASH] $ 4,400 [RECEIVABLES] 152,260 [SECURITIES-RESALE] 6,597 [SECURITIES-BORROWED] 402,767 [INSTRUMENTS-OWNED] 85,869 [PP&E] 14,397 [TOTAL-ASSETS] 684,898 [SHORT-TERM] 131,312 [PAYABLES] 56,073 [REPOS-SOLD] 0 [SECURITIES-LOANED] 417,069 [INSTRUMENTS-SOLD] 11,762 [LONG-TERM] 16,011 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [COMMON] 54 [OTHER-SE] 42,811 [TOTAL-LIABILITY-AND-EQUITY] 684,898 [TRADING-REVENUE] 14,566 [INTEREST-DIVIDENDS] 10,052 [COMMISSIONS] 11,581 [INVESTMENT-BANKING-REVENUES] 3,196 [FEE-REVENUE] 2,664 [INTEREST-EXPENSE] 8,424 [COMPENSATION] 22,888 [INCOME-PRETAX] 30 [INCOME-PRE-EXTRAORDINARY] 66 [EXTRAORDINARY] 305 [CHANGES] 0 [NET-INCOME] 371 [EPS-PRIMARY] 0.07 [EPS-DILUTED] 0.06 Prior periods restated to conform to Financial Accounting Standards No. 128- "Earnings per share". [PERIOD-TYPE] YEAR [FISCAL-YEAR-END] DEC-31-1996 [PERIOD-END] DEC-31-1996 [CASH] $ 4,005 [RECEIVABLES] 138,167 [SECURITIES-RESALE] 2,869 [SECURITIES-BORROWED] 344,904 [INSTRUMENTS-OWNED] 162,311 [PP&E] 12,584 [TOTAL-ASSETS] 675,785 [SHORT-TERM] 134,712 [PAYABLES] 107,939 [REPOS-SOLD] 0 [SECURITIES-LOANED] 350,577 [INSTRUMENTS-SOLD] 10,075 [LONG-TERM] 6,009 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [COMMON] 54 [OTHER-SE] 42,220 [TOTAL-LIABILITY-AND-EQUITY] 675,785 [TRADING-REVENUE] [INTEREST-DIVIDENDS] 32,240 [COMMISSIONS] 42,711 [INVESTMENT-BANKING-REVENUES] 19,558 [FEE-REVENUE] 10,244 [INTEREST-EXPENSE] 26,030 [COMPENSATION] 95,691 [INCOME-PRETAX] 9,092 [INCOME-PRE-EXTRAORDINARY] 5,500 [EXTRAORDINARY] 0 [CHANGES] 0 [NET-INCOME] 5,500 [EPS-PRIMARY] 1.00 [EPS-DILUTED] 0.93 Prior periods restated to conform to Financial Accounting Standards No. 128- "Earnings per share". [PERIOD-TYPE] 9-MOS [FISCAL-YEAR-END] DEC-31-1996 [PERIOD-END] SEP-27-1996 [CASH] $ 10,555 [RECEIVABLES] 151,558 [SECURITIES-RESALE] 0 [SECURITIES-BORROWED] 525,330 [INSTRUMENTS-OWNED] 98,836 [PP&E] 7,362 [TOTAL-ASSETS] 805,142 [SHORT-TERM] 101,567 [PAYABLES] 81,623 [REPOS-SOLD] 2,996 [SECURITIES-LOANED] 546,753 [INSTRUMENTS-SOLD] 4,443 [LONG-TERM] 9,927 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [COMMON] 51 [OTHER-SE] 40,812 [TOTAL-LIABILITY-AND-EQUITY] 805,142 [TRADING-REVENUE] 48,148 [INTEREST-DIVIDENDS] 20,629 [COMMISSIONS] 31,804 [INVESTMENT-BANKING-REVENUES] 12,475 [FEE-REVENUE] 7,397 [INTEREST-EXPENSE] 16,098 [COMPENSATION] 70,298 [INCOME-PRETAX] 7,041 [INCOME-PRE-EXTRAORDINARY] 4,271 [EXTRAORDINARY] 0 [CHANGES] 0 [NET-INCOME] 4,271 [EPS-PRIMARY] 0.77 [EPS-DILUTED] 0.72 Prior periods restated to conform to Financial Accounting Standards No. 128- "Earnings per share". [PERIOD-TYPE] 9-MOS [FISCAL-YEAR-END] SEP-27-1996 [PERIOD-END] JUN-28-1996 [CASH] $ 3,362 [RECEIVABLES] 132,328 [SECURITIES-RESALE] 0 [SECURITIES-BORROWED] 288,902 [INSTRUMENTS-OWNED] 128,454 [PP&E] 6,997 [TOTAL-ASSETS] 571,368 [SHORT-TERM] 136,033 [PAYABLES] 65,953 [REPOS-SOLD] 4,975 [SECURITIES-LOANED] 298,211 [INSTRUMENTS-SOLD] 5,758 [LONG-TERM] 5,156 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [COMMON] 51 [OTHER-SE] 40,117 [TOTAL-LIABILITY-AND-EQUITY] 571,368 [TRADING-REVENUE] 46,067 [INTEREST-DIVIDENDS] 21,317 [COMMISSIONS] 31,982 [INVESTMENT-BANKING-REVENUES] 14,059 [FEE-REVENUE] 6,482 [INTEREST-EXPENSE] 16,758 [COMPENSATION] 69,776 [INCOME-PRETAX] 7,919 [INCOME-PRE-EXTRAORDINARY] 4,892 [EXTRAORDINARY] 0 [CHANGES] 0 [NET-INCOME] 4,892 [EPS-PRIMARY] 0.89 [EPS-DILUTED] 0.82 Prior periods restated to conform to Financial Accounting Standards No. 128- "Earnings per share". [PERIOD-TYPE] 6-MOS [FISCAL-YEAR-END] SEP-27-1996 [PERIOD-END] MAR-29-1996 [CASH] $ 2,970 [RECEIVABLES] 119,763 [SECURITIES-RESALE] 0 [SECURITIES-BORROWED] 258,469 [INSTRUMENTS-OWNED] 75,137 [PP&E] 7,485 [TOTAL-ASSETS] 478,178 [SHORT-TERM] 95,587 [PAYABLES] 50,105 [REPOS-SOLD] 0 [SECURITIES-LOANED] 266,756 [INSTRUMENTS-SOLD] 9,874 [LONG-TERM] 5,500 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [COMMON] 49 [OTHER-SE] 38,713 [TOTAL-LIABILITY-AND-EQUITY] 478,178 [TRADING-REVENUE] 28,510 [INTEREST-DIVIDENDS] 14,577 [COMMISSIONS] 20,783 [INVESTMENT-BANKING-REVENUES] 9,730 [FEE-REVENUE] 4,094 [INTEREST-EXPENSE] 11,585 [COMPENSATION] 44,778 [INCOME-PRETAX] 5,339 [INCOME-PRE-EXTRAORDINARY] 3,307 [EXTRAORDINARY] 0 [CHANGES] 0 [NET-INCOME] 3,307 [EPS-PRIMARY] 0.60 [EPS-DILUTED] 0.56 Prior periods restated to conform to Financial Accounting Standards No. 128- "Earnings per share". [PERIOD-TYPE] 3-MOS [FISCAL-YEAR-END] DEC-31-1995 [PERIOD-END] DEC-31-1995 [CASH] $ 6,750 [RECEIVABLES] 124,482 [SECURITIES-RESALE] 0 [SECURITIES-BORROWED] 283,785 [INSTRUMENTS-OWNED] 82,056 [PP&E] 6,075 [TOTAL-ASSETS] 510,081 [SHORT-TERM] 112,292 [PAYABLES] 56,555 [REPOS-SOLD] 0 [SECURITIES-LOANED] 283,146 [INSTRUMENTS-SOLD] 4,407 [LONG-TERM] 1,641 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [COMMON] 49 [OTHER-SE] 37,509 [TOTAL-LIABILITY-AND-EQUITY] 510,081 [TRADING-REVENUE] 12,322 [INTEREST-DIVIDENDS] 8,138 [COMMISSIONS] 9,639 [INVESTMENT-BANKING-REVENUES] 5,435 [FEE-REVENUE] 1,870 [INTEREST-EXPENSE] 6,631 [COMPENSATION] 20,433 [INCOME-PRETAX] 2,482 [INCOME-PRE-EXTRAORDINARY] 1,553 [EXTRAORDINARY] 0 [CHANGES] 0 [NET-INCOME] 1,553 [EPS-PRIMARY] 0.28 [EPS-DILUTED] 0.26 Prior periods restated to conform to Financial Accounting Standards No. 128- "Earnings per share". [PERIOD-TYPE] YEAR [FISCAL-YEAR-END] SEP-29-1995 [PERIOD-END] SEP-29-1995 [CASH] $ 3,253 [RECEIVABLES] 95,464 [SECURITIES-RESALE] 0 [SECURITIES-BORROWED] 376,919 [INSTRUMENTS-OWNED] 56,025 [PP&E] 6,062 [TOTAL-ASSETS] 543,255 [SHORT-TERM] 53,288 [PAYABLES] 45,574 [REPOS-SOLD] 0 [SECURITIES-LOANED] 388,523 [INSTRUMENTS-SOLD] 3,892 [LONG-TERM] 1,791 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [COMMON] 49 [OTHER-SE] 36,143 [TOTAL-LIABILITY-AND-EQUITY] 543,255 [TRADING-REVENUE] 43,198 [INTEREST-DIVIDENDS] 26,173 [COMMISSIONS] 31,889 [INVESTMENT-BANKING-REVENUES] 14,625 [FEE-REVENUE] 7,214 [INTEREST-EXPENSE] 19,904 [COMPENSATION] 71,064 [INCOME-PRETAX] 5,220 [INCOME-PRE-EXTRAORDINARY] 3,350 [EXTRAORDINARY] 0 [CHANGES] 0 [NET-INCOME] 3,350 [EPS-PRIMARY] 0.61 [EPS-DILUTED] 0.59
EX-3.2C 6 Exhibit 3.2c AMENDED AND RESTATED BYLAWS -of- FIRST ALBANY COMPANIES INC. (herein called the "Corporation") ARTICLE I Shareholders Section 1.01. Annual Meeting. The annual meeting of the stockholders of the Corporation for the election of directors and for the transaction of such other business as may properly come before such meeting shall be held at the principal office of the Corporation in the City of Albany, New York, on such date and at such time as may be fixed by the Board of Directors. Section 1.02. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, may be called at any time by the President or by resolution of the Board of Directors. Special meetings of shareholders shall be held at such place as shall be fixed by the person or persons calling the meeting and stated in the notice or waiver of notice of the meeting. At any special meeting only such business may be transacted which is related to the purpose or purposes set forth in the notice or waiver of notice of the meeting. Section 1.03. Notice of Meetings of Shareholders. Whenever shareholders are required or permitted to take any action at a meeting, written notice shall be given stating the place, date and hour of the meeting and, unless it is the annual meeting, indicating that it is being issued by or at the direction of the person or persons calling the meeting. Notice of a special meeting shall also state the purpose or purposes for which the meeting is called. If, at any meeting, action is proposed to be 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 nine, but this number may be increased and subsequently again increased or decreased by an amendment to these Bylaws, except that the number shall never be less than three nor more than nine and that no decrease shall shorten the term of any incumbent director. Section 2.03. Election and Term. At each annual meeting of ------------- ------------------ shareholders, directors shall be elected to hold office until the next annual meeting, subject to the provisions of Section 2.05 hereof. Each director shall hold office until the expiration of the term for which he is elected, and until his successor has been elected and qualified. Section 2.04. Resignations. Any director of the Corporation may ------------- ------------- resign at any time by giving written notice to the Board of Directors, the President or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, if any, or if no time is specified therein, then upon receipt of such notice by the addressee; and, unless otherwise provided therein, the acceptance of such resignation shall not be necessary to make it effective. Section 2.05. Removal of Directors. Any or all of the directors ------------- --------------------- may be removed at any time (a) for cause by vote of the shareholders or by action of the Board of Directors or (b) without cause by vote of the shareholders, except as expressly provided otherwise by Section 706 of the Business Corporation Law. Section 2.06. Newly Created Directorships and Vacancies. Newly ------------- ------------------------------------------- created directorships resulting from an increase in the number of directors and vacancies occurring in the Board of Directors for any reason except the removal of directors without cause may be filled by vote of the Board of Directors. If the number of directors then in office is less than a quorum, such newly created directorships and vacancies may be filled by vote of a majority of the directors then in office. The Board of Directors shall fill vacancies occurring in the Board of Directors by reason of the removal of directors without cause. A director elected to fill a vacancy shall hold office until the next meeting of shareholders at which the election of directors is in the regular order of business, and until his successor has been elected and qualified. Section 2.07. Quorum and Vote of Directors. At all meetings of ------------ ------------------------------ the Board of Directors, a majority of the entire Board of Directors shall be necessary and sufficient to constitute a quorum for the transaction of business. The vote of a majority of the directors present at the time of the vote, if a quorum is present at such time, shall be the act of the Board of Directors, except as expressly provided otherwise in these Bylaws and by the statutes of the State of New York. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting of the Board of Directors to another time and place. Notice of any adjournment need not be given if such time and place are announced at the meeting. Section 2.08. Annual Meeting. The newly elected Board of ------------- ---------------- Directors shall meet immediately following the adjournment of the annual meeting of shareholders in each year at the same place and no notice of such meeting shall be necessary. Section 2.09. Regular Meetings. Regular meetings of the Board of ------------- ----------------- Directors may be held at such times and places as shall from time to time be fixed by the Board of Directors and no notice thereof shall be necessary. Section 2.10. Special Meetings. Special meetings may be called ------------- ----------------- at any time by the President, or by resolution of the Board of Directors. Special meetings shall be held at such places as shall be fixed by the person or persons calling the meeting and stated in the notice or waiver of notice of the meeting. Special meetings of the Board of Directors shall be held upon notice to the directors. Notice of a special meeting need not be given to any director who submits a signed waiver of notice whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to him. Unless waived, notice of each special meeting of the Board of Directors, stating the time and place of the meeting, shall be given to each director by delivered letter, by telegram or by personal communication either over the telephone or otherwise, in each such case not later than the third day prior to the meeting, or by mailed letter deposited in the United States mail with postage thereon prepaid not later than the seventh day prior to the meeting. Notices of special meetings of the Board of Directors and waivers thereof need not state the purpose or purposes of the meeting. Section 2.11. Telephonic Meetings. A member of the Board of ------------- -------------------- Directors or any committee thereof may participate in a meeting of the Board of Directors or of such committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time, and participation in a meeting by such means shall constitute presence in person at such meeting. Section 2.12. Compensation. Directors shall receive such fixed ------------ ------------- sums and expenses of attendance for attendance at each meeting of the Board of Directors or of any committee and such salary as may be determined from time to time by the Board of Directors; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 2.13(a)Committees. The Board of Directors, by resolution ------------ ----------- adopted by a majority of the entire Board of Directors, may designate from among its members an Executive Committee and other committees, each consisting of three or more directors, and each of which, to the extent provided in the resolution, shall have all the authority of the Board of Directors, except that no such committee shall have authority as to the following matters: (a) The submission to shareholders of any action that needs shareholders' approval under the Business Corporation Law (b) The filling of vacancies in the Board of Directors or in any committee. (c) The fixing of compensation of the directors for serving on the Board of Directors or on any committee. (d) The amendment or repeal of the Bylaws, or the adoption of new Bylaws. (e) The amendment or repeal of any resolution of the Board of Directors which by its terms shall not be so amenable or repealable. The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent member or members at any meeting of such committee. Each such committee shall serve at the pleasure of the Board of Directors. Regular meetings of any such committee shall be held at such times and places as shall from time to time be fixed by such committee and no notice thereof shall be necessary. Special meetings may be called at any time by any officer of the Corporation or any member of such committee. Notice of each special meeting of each such committee shall be given (or waived) in the same manner as notice of a special meeting of the Board of Directors. A majority of the members of any such committee shall constitute a quorum for the transaction of business and the act of a majority of the members present at the time of the vote, if a quorum is present at such time, shall be the act of the committee. Section 2.13(b). Audit Committee. There shall be an Audit ---------------- ---------------- Committee of the Board of Directors which shall serve at the pleasure of the Board of Directors and be subject to its control. The Committee shall have at least three members, two of whom shall be independent outside directors. Members shall be appointed by the Chairman, subject to approval of the Board. The committee shall recommend to the Board of Directors the appointment or discharge of the corporation's independent auditors, shall review and approve the scope and plan of the annual audit, shall review the results of such audit, and shall perform such other duties as may be lawfully delegated to it from time to time by the Board of Directors. Section 2.13(c). Executive Compensation Committee. ---------------- --------------------------------- There shall be an Executive Compensation Committee of the Board of Directors which will serve at the pleasure of the Board of Directors and be subject to its control. The Committee shall have at least three members, all of whom shall be independent outside directors appointed by the Chairman, subject to the approval of the Board of Directors. The Committee shall approve the compensation of the executive officers of the company, and shall have such other duties as may be lawfully delegated to it from time to time by the Board of Directors. Section 2.14. Interested Directors. No contract or other ------------- ---------------------- transaction between the Corporation and one or more of its directors, or between the Corporation and any other corporation, firm, association or other entity in which one or more of the Corporation's directors are directors or officers, or have a substantial financial interest, shall be either void or voidable for this reason alone or by reason alone that such director or directors are present at the meeting of the Board of Directors, or of a committee thereof, which approves such contract or transaction, or that his or their votes are counted for such purpose. (1) If the material facts as to such director's interest in such contract or transaction and as to any such common directorship, officership or financial interest are disclosed in good faith or known to the Board of Directors or committee, and the Board of Directors or committee approves such contract or transaction by a vote sufficient for such purpose without counting the vote of such interested director or, if the votes of the disinterested directors are insufficient to constitute an act of the Board of Directors as defined in Section 708 of the Business Corporation Law, by unanimous vote of the disinterested directors; or (2) If the material facts as to such director's interest in such contract or transaction and as to any such common directorship, officership or financial interest are disclosed in good faith or known to the shareholders entitled to vote thereon, and such contract or transaction is approved by vote of such shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which approves such contract or transaction. ARTICLE III Officers Section 3.01 Election or Appointment; Number. The officers of ------------ --------------------------------- the Corporation shall be elected or appointed by the Board of Directors. The officers shall be a President, a Secretary, a Treasurer, and such number of Vice Presidents, Assistant Secretaries and Assistant Treasurers, and such other officers, as the Board of Directors may from time to time determine. Any person may hold two or more offices at the same time, except the offices of President and Secretary. Any officer may, but no officer need, be chosen from among the Board of Directors. Section 3.02. Term. Subject to the provisions of Section 3.03 ------------ ----- hereof, all officers shall be elected or appointed to hold office for the term for which he is elected or appointed or until his death and until his successor has been elected or appointed and qualified. The Board of Directors may require any officer to give security for the faithful performance of his duties. Section 3.03. Removal. Any officer elected or appointed by the ------------- -------- Board of Directors may be removed by the Board of Directors with or without cause. The removal of an officer without cause shall be without prejudice to his contract rights, if any. The election or appointment of an officer shall not of itself create contract rights. Regular meetings of any such committee shall be held at such times 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. UNANIMOUS CONSENT OF BOARD OF DIRECTORS OF FIRST ALBANY COMPANIES INC. The undersigned, constituting the entire Board of Directors of First Albany Companies Inc., a New York Corporation (the "Company"), in accordance with the provisions of Section 708(b) of the Business Corporation Law of the State of New York, do hereby consent to and adopt the following resolution with the same force and effect as if presented to and adopted at a meeting of the Board of Directors of the Company: RESOLVED, that the Bylaws of the Company are hereby amended by deleting the word "eight" contained in the second line of Section 2.02 of Article II and inserting in lieu thereof the word "nine". WHEREAS, there being a vacant seat on the Board of Directors of Company and Mr. Peter Barton has been nominated to fill such seat; now therefore it is RESOLVED, that Peter Barton is hereby elected as a director of the Company to serve until the next annual meeting of shareholders or until his successor is elected and qualified. IN WITNESS WHEREOF, the Board of Directors has executed this Unanimous Consent as of July 31, 1997. /s/GEORGE C. McNAMEE /s/ALAN P. GOLDBERG - ------------------------- -------------------------- George C. McNamee Alan P. Goldberg /s/J. ANTHONY BOECKH /s/WALTER M. FIEDEROWICZ - ------------------------- ------------------------- J. Anthony Boeckh Walter M. Fiederowicz /s/DANIEL McNAMEE, III /s/BENAREE P. WILEY - --------------------------- -------------------------- Daniel McNamee, III Benaree P. Wiley /s/CHARLES L. SCHWAGER /s/HUGH A. JOHNSON, JR. - ------------------------- -------------------------- Charles L. Schwager Hugh A. Johnson, Jr. EX-10.20A 7 EXHIBIT 10.20A AMENDMENT NO.1 TO SUBORDINATED LOAN AGREEMENT Amendment No. 1, dated as of December 23, 1997 ("Amendment"), to the Subordinated Loan Agreement, dated as of September 16, 1996 (the Subordinated Loan Agreement"), between First Albany Corporation, a New York corporation (the "Company"), and Sharon M. Duker (the "Lender"). WHEREAS, in order to extend the maturity on the Note dated September 16, 1996 from the Company to the Lender and issued pursuant to the Subordinated Loan Agreement (the "Original Note"), the Original Note has been cancelled as of the date hereof and replaced with a note, dated the date hereof, and in substantially the form attached hereto as Exhibit A; and WHEREAS, the parties hereto wish to make certain amendments to the Subordinated Loan Agreement; NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the parties hereby agree as follows: 1.All capitalized terms shall have the respective meaning ascribed to them in the Subordinated Loan Agreement unless otherwise defined herein. 2.Section 6(E)(ii) of the Subordinated Loan Agreement is hereby amended by deleting the number "3.5" in the first line thereof and inserting the number "3.0" in lieu thereof. 3.Section 3(A) of the Subordinated Loan Agreement is hereby amended by deleting the words "July 31, 2001" in the last sentence thereof and inserting the words "December 31, 2002" in lieu thereof. 4.This Amendment may be executed in two or more counterparts each of which shall be deemed an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, this Amendment has been executed and delivered as of the date first written above. FIRST ALBANY CORPORATION By: /s/ ALAN GOLDBERG ------------------------- Name: Title: LENDER By: /s/ SHARON M. DUKER -------------------------- Sharon M. Duker NOTE $5,000,000.00* * * Albany, New York December 23 1997 FOR VALUE RECEIVED, the undersigned FIRST ALBANY CORPORATION, a New York corporation with offices at 30 South Pearl Street, Albany, New York 12207, promises to pay to the order of Sharon M. Duker, (herein called the "Lender"), at the office of the Lender in Albany, New York or at such other place as may be designated from time to time by the Lender, the sum of Five Million ($5,000,000.00) Dollars and to pay interest on the disbursed, unpaid principal, from the date hereof, at the rate of nine and one-quarter (9.25%) percent per annum. The undersigned promises to pay the principal and interest as follows: a)Accrued interest to be paid on the 31st day of December, 1997, and on the last business day of each succeeding month thereafter during the term thereof . b)The entire unpaid balance of principal together with accrued interest to be paid to the Lender on the 31st day of December, 2002. All amounts paid pursuant to this paragraph shall be applied first to the payment of accrued interest to the date of payment and then to the reduction of principal. The undersigned agrees to pay accrued interest and/or principal when due. This Note is subject to the terms, covenants and conditions set forth in a Subordinated Loan Agreement by and between the undersigned and the Lender dated as of September 16, 1996, as amended (the "Loan Agreement"), and all such terms, covenants and conditions of such Loan Agreement are all hereby incorporated in this Note, with the same force and effect as though said terms, covenants and conditions were fully set forth herein. This Note is issued as a replacement for the note issued pursuant to the Loan Agreement and dated September 16, 1996. The prepayment of any portion of the principal or interest due under this Note shall be allowed in accordance with the terms of the Loan Agreement. DEFAULT. Upon the occurrence of certain Events of Default, specified in the Loan Agreement, the principal of and interest on this Note may be declared due and payable either immediately or as set forth therein. The payment of principal of the Note may be suspended upon the occurrence of certain events specified in the Loan Agreement, and such suspension will not constitute a default hereunder. The undersigned agrees to pay all costs and expenses incurred by the holder hereof in enforcing this Note, including, without limitation, reasonable attorneys' fees and legal expenses. (CORPORATE SEAL) FIRST ALBANY CORPORATION ATTEST By: /s/ ALAN P. GOLDBERG --------------------------- /s/ STEPHEN P. WINK Alan P. Goldberg, President - -------------------------- Stephen P. Wink, Secretary THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAS BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND THIS OPTION MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT COVERING IT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) FROM THE TRANSFEROR REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. OPTION TO PURCHASE COMMON STOCK OF FIRST ALBANY COMPANIES INC. 1.a. This certifies that, subject to the terms set forth below, in consideration of Sharon M. Duker, (the "Holder") making a loan of Five Million and 00/100 Dollars ($5,000,000) (the Indebtedness") to a wholly- owned subsidiary, First Albany Corporation, of FIRST ALBANY COMPANIES INC. (the "Company"), the Company grants to Holder the option to purchase, at any time during the Exercise Period (as defined below) 88,200 shares of its common stock, par value $.01 per share, (the "Common Stock") at a purchase price of $11.34 per share (the "Purchase Price"). The Purchase Price shall be paid by the discharge of One Million and 00/100 Dollars ($1,000,000) of the Indebtedness. b. The Exercise Period shall begin on the date hereof and end at 5:00 p.m., New York time on the earlier of (i) 5:00 p.m., New York time, on the final scheduled maturity date of the Note (as defined in the Subordinated Loan Agreement between the Holder and the Company dated September 16, 1996 (the "Agreement")), (ii) the Change of Control Payment Date (as defined in the Agreement); and (iii) the date of any Voluntary Prepayment (as defined in the Agreement). Notwithstanding anything contained herein to the contrary, any exercise of this option during the period beginning six months prior to the final scheduled maturity date shall not be effective until the final scheduled maturity date. c. This Option may be exercised by surrender to the Company, at its principal executive offices, of the subscription form attached hereto duly executed and the simultaneous delivery to the Company of a document, in form and substance acceptable to the Company, evidencing the discharge of One Million and 00/100 Dollars ($1,000,000) of the Indebtedness. d. The Company agrees to give the Holder thirty (30) days prior written notice of any Voluntary Prepayment. e. All notices sent to the Company and the Holder under this Option shall be sent by certified mail, return receipt requested, or by personal delivery addressed to the Company's General Counsel at its principal executive offices, or addressed to the Holder at the address provided in the Agreement or at such other address as the Holder may give to the Company pursuant to the Agreement, respectively. f. Certificates for shares of Common Stock purchased upon exercise of this Option will be delivered by the Company to the Holder or his designee within thirty (30) business days after the exercise of the Option. g. The Common Stock issuable upon the exercise of this Option will be deemed to have been issued on the date (the "Exercise Date") the Company receives satisfactory evidence of payment of the Purchase Price, and the Holder will be deemed for all purposes to have become the record holder of such Common Stock on the Exercise Date. h. The issuance of certificates for shares of Common Stock upon exercise of this Option shall be made subject to, and the Holder shall be responsible for, any and all charges to the Holder for any issuance tax in respect thereof or other cost incured by the Company in connection with such exercise and the related issuance of shares of Common Stock. Each share of Common Stock issuable upon exercise of this Option will, upon payment of the Purchase Price thereof, be fully paid and nonassessable and free from all liens and charges with respect to the issuance thereof. i. After the date hereof and prior to the exercise of this Option, the aggregate number of shares subject to this Option and the exercise price shall be adjusted to reflect any stock splits or stock dividends declared with respect to the Common Stock. 2. The Holder shall have no rights as a shareholder in respect of shares covered by the Option prior to exercise of this Option with respect thereto and until the Holder has made payment therefor as herein provided, and the Holder shall have no rights with respect to such shares not expressly conferred by this Option. 3. The Company shall at all times during the term of this Option reserve and keep available such number of shares of its Common Stock as will be sufficient to satisfy the requirements of this Option. 4. This Option shall be binding upon the Company's successors and assigns. This Option shall not be transferred by the Holder without the prior written consent of the Company; any such transfer without the consent of the Company will render this Option void. 5. This Option shall be construed and enforced in accordance with and governed by the laws of New York without regard to its principles of conflicts of laws. Any action or proceeding brought by the Holder or the Company against the other arising out of or related to the Option shall be brought in a State or Federal Court of competent jurisdiction located in Albany, New York and the Holder and the Company hereby submit to the jurisdiction of such courts for the purposes of any such action or proceeding. 6. The Holder agrees that he will comply with all applicable laws, rules and regulations of all Federal and State securities regulators, including but not limited to the Securities and Exchange Commission, the New York Stock Exchange, the National Association of Securities Dealers and applicable state securities regulators with respect to disclosure, filings and any other requirements resulting in any way from the issuance of this Option other than those required to be made by the Company in accordance with applicable Federal and State securities laws and regulations. IN WITNESS WHEREOF, the parties have signed this Option intending to be legally bound hereto. DATED: December 23, 1997 FIRST ALBANY COMPANIES INC. /s/ ALAN P. GOLDBERG ---------------------------- President HOLDER: /s/ SHARON M. DUKER ---------------------------- Sharon M. Duker SUBSCRIPTION FORM (to the executed only upon exercise of Option) The undersigned Holder of the Option granted pursuant to the Option Agreement dated December 23, 1997 (the "Option Agreement"), irrevocably exercises this Option to purchase all such shares of Common Stock of First Albany Companies Inc. as are granted as of the date hereof pursuant to the Option Agreement and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Option. DATED: Number of Shares: _______________________ __________________________________ (Signature of Holder) __________________________________ (Name of Holder) __________________________________ Street Address __________________________________ (City) (State) (Zip) EX-10.23 8 EXHIBIT 10.23 NOTE $2,500,000.00*** Albany, New York December 23, 1997 FOR VALUE RECEIVED, the undersigned FIRST ALBANY CORPORATION, a New York corporation with offices at 30 South Pearl Street, Albany, New York 12207, promises to pay to the order of Sharon M. Duker, (herein called the "Lender"), at the office of the Lender in Albany, New York or at such other place as may be designated from time to time by the Lender, the sum of Two Million Five Hundred Thousand ($2,500,000.00) Dollars and to pay interest on the disbursed, unpaid principal, from the date hereof, at the rate of eight and three-quarters (8.75%) percent per annum. The undersigned promises to pay the principal and interest as follows: a)Accrued interest to be paid on the 31st day of December, 1997, and on the last business day of each succeeding month thereafter during the term hereof. b)The entire unpaid balance of principal together with accrued interest to be paid to the Lender on the 31st day of December, 2002. All amounts paid pursuant to this paragraph applied first to the payment of accrued interest to the date of payment and then to the reduction of principal. The undersigned agrees to pay accrued interest and/or principal when due. This Note is subject to the terms, covenants and conditions Set forth in a Subordinated Loan Agreement by and between the undersigned and the Lender, dated as of December 23, 1997 (the "Loan Agreement"), and all such terms, covenants and conditions of such Loan Agreement are all hereby incorporated in this Note, with the same force and effect as though said terms, covenants and conditions were fully set forth herein. The prepayment of any portion of the principal or interest due under this Note shall be allowed in accordance with the terms of the Loan Agreement. DEFAULT. Upon the occurrence of certain Events of Default, specified in the Loan Agreement, the principal of and interest on this Note may be declared due and payable either immediately or as set forth therein. The payment of principal of the Note may be suspended upon the occurrence of certain events specified in the Loan Agreement, and such suspension will not constitute a default hereunder. The undersigned agrees to pay all costs and expenses incurred by the holder hereof in enforcing this Note, including, without limitation, reasonable attorneys' fees and legal expenses. (CORPORATE SEAL) FIRST ALBANY CORPORATION ATTEST By: /s/ ALAN P. GOLDBERG /s/ STEPHEN P. WINK Alan P. Goldberg, President Stephen P. Wink, Secretary SUBORDINATED LOAN AGREEMENT --------------------------- Subordinated Loan Agreement dated as of December 23, 1997, between First Albany Corporation, a New York corporation (the "Company"), and Sharon M. Duker (the "Lender"). WITNESSETH: ----------- 1. CERTAIN DEFINITIONS. All terms not specifically defined in this -------------------- Agreement shall be construed in accordance with the Act, the Rules and Regulations promulgated thereunder, and the Constitution, Rules and Regulations of the Exchange. As used in this Agreement: "Act" means the Securities Exchange Act of 1934, as amended from ----- time to time. "Aggregate Debit Items" means aggregate debit items of the ------------------------ Company as defined in Exhibit A to Rule 15c3-3 as in effect as of the date any determination is made thereunder. "Aggregate Indebtedness" means aggregate indebtedness of the ------------------------ Company as defined in subparagraph (c) (1) of Rule 15c3-1 as in effect as of the date any determination is made thereunder. "CEA" means the Commodity Exchange Act. ----- "CFTC" means the Commodities Futures Trading Commission. ------- "Change of Control" has the meaning ascribed to it in Section 8 ------------------- hereof. "Commission" means the Securities and Exchange Commission or any ------------ agency of the United States succeeding to its authority. "FOCUS Report" means Form X-17A-5 promulgated under Section 17 of -------------- the Act and Rule 17a-5. "Effective Date" means the date an executed copy of this ----------------- Agreement is approved by the Exchange. "Event of Acceleration" means any event described in Section 7.B ----------------------- of this Agreement. "Event of Default" means any event described in Section 7.A of ------------------ this Agreement. "Examining Authority" means the Exchange, provided, however, --------------------- that, upon termination of the Company as a member firm of the Exchange, the term Examining Authority shall refer to such regulatory body having responsibility for inspecting or examining the Company for compliance with financial responsibility requirements under Section 13(c) of SIPA and Section 17(d) of the Act. "Exchange" means the New York Stock Exchange, Inc. and other ---------- exchanges. "Net Capital" means net capital of the Company as defined in ------------- subparagraph (c) (2) of Rule 15c3-1 as in effect as of the date any determination is made thereunder. "Note" means the Note as defined in Section 3.A of this Agreement ------ in the amount of $2,500,000.00. "Rule" means the respective rule promulgated pursuant to the Act and any successor rule thereto. "SIPA" means the Securities Investor Protection Act of 1970, as amended from time to time. "Subordinated Agreement" means subordinated loan agreements and ------------------------ secured demand note agreements as defined in subparagraph (a)(2) of Appendix D to Rule 15c3-1. "Tangible Net Worth" means the excess of total assets over total liabilities, total assets and total liabilities each to be determined in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 2.C hereof, excluding, however, from the determination of total assets all assets which would be classified as intangible assets including, without limitation, goodwill (whether representing the excess of cost over equity or any premium paid in excess of assets acquired or otherwise) and any write-up of the book value of assets resulting from a revaluation thereof after the date of such financial statements all as determined under generally accepted accounting principles. 2. REPRESENTATIONS AND WARRANTIES. The Company represents, covenants ------------------------------- and warrants that as of the closing date hereunder: A. Corporate Existence and Power. The Company is a corporation duly ------------------------------ formed and validly existing under the laws of the State of New York, and has the corporate power to make this Agreement and to borrow and perform the obligations hereunder. The Company is duly licensed or qualified in all states wherein the character of the property owned or the nature of the business transacted by it, in the opinion of management of the Company, makes licensing or qualification necessary and is in good standing, and will remain in good standing, as a member of the Exchange. B. Corporate Authority. The making and performance by the Company of this Agreement have been duly authorized by all necessary action on the part of the Company and will not violate any provision of federal, state or local law or its Articles of Incorporation or Certificate of Incorporation or result in a breach of, or constitute a default under, or require any consent under, any material indenture or loan or credit or other agreement to which the Company is a party or by which the Company or its property may be bound or affected. C. Financial Condition. The balance sheet of the Company as of -------------------- December 31, 1996, the statements of profit and loss and surplus of the Company for the audit year ending on that date, the FOCUS Report of the Company dated September 30, 1997, heretofore furnished to the Lender are complete and correct and fairly present the financial condition of the Company as at the dates of said balance sheet, FOCUS Report and the results of the Company's operations for the audit year ended on the date of said balance sheet. Such financial statements were prepared in accordance with generally accepted principles and practices of accounting consistently applied. To the best of the Company's knowledge and belief, it has no contingent obligations, or unusual forward or long term commitments not disclosed by or reserved against in said balance sheet as of December 31, 1996, or in said FOCUS Report dated September 30, 1997, and, to the best of the Company's knowledge and belief, at the present time there are no unrealized or anticipated losses from any unfavorable commitments of the Company which have not been disclosed to the Lender. Since December 31, 1996, there has been no material adverse change in the financial condition of the Company from that set forth in said balance sheet as of December 31, 1996, or in said FOCUS Report dated September 30, 1997. D. Titles; Liens. Other than as described in Schedule I hereto, the -------------- Company has good and marketable title to all of the properties and assets reflected in the latest financial statement (except such as have been disposed of in the ordinary course of business for a fair consideration), free and clear of all mortgages, liens, encumbrances, except such minor irregularities in title which will not interfere with the occupation, use and enjoyment by the Company of such properties and assets in the normal course of business of the Company. E. Taxes. The Company has filed all tax returns required to be ------ filed and has paid all taxes shown thereon to be due, including interest and penalties, if any, or has provided adequate reserves for the payment thereof. The Company is not a party to any material action or proceeding by any governmental authority for the assessment or collection of taxes nor has any material claim for assessment or collection of taxes been asserted against the Company. F. Licenses, etc. The Company possesses all licenses, permits and -------------- approvals necessary for the conduct of its business as now conducted and presently proposed to be conducted as, in the opinion of the management of the Company, is required by law or the rules of the Commission, the Exchange, the National Association of Securities Dealers, Inc. and each other association, corporation or governmental agency or body having appropriate authority (except such licenses, permits or approvals by authorities outside the United States the failure to possess which will not, individually or in the aggregate, result in a material liability on the part of the Company or materially impair the right or ability of the Company to carry on its business substantially as now conducted and proposed to be conducted). G. Governmental Consent. All consents, approvals or authorizations --------------------- of, or filings, registrations or qualifications with, any governmental authority (including, without limitation, any State securities commission) required by any statute, rule of regulation now in effect on the part of the Company as a condition to the valid execution and delivery of this Agreement, the valid offer of the Note to the Lender, the valid payment of the Note in accordance with the terms thereof and of this Agreement have been duly obtained and performed. H. Stock Exchange Approvals. The Company has obtained all consents, approvals or authorizations of the Exchange and of other securities exchanges of which the Company is a member that are required on the part of the Company in connection with the due execution, delivery and performance of this Agreement, the offer, issue and delivery of the Note and the consummation of the transactions contemplated by such instruments. I. Broker-Dealer Registration. The Company is registered as a --------------------------- broker-dealer under the Act and is also registered where necessary in the opinion of the management of the Company as a broker-dealer with the proper authorities of every State of the United States. J. NASD and Exchange Memberships. The Company is a member --------------------------------- organization in good standing of the National Association of Securities Dealers, Inc. (_NASD_), and the following securities exchanges: the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the Boston Stock Exchange. K. SIPA Agreement. The Company is not in arrears with respect to --------------- any assessment made upon the Company by the Securities Investor Protection Corporation. 3. TERMS OF THE LOAN. A. The Note. The obligation of the Company to repay the aggregate --------- unpaid principal amount of the loan made to it pursuant hereto shall be evidenced by a promissory note of the Company in substantially the form of Exhibit A hereto. The Note shall bear interest on the unpaid principal amount thereof, from the date thereof at a rate of 8.75%. The entire unpaid balance of principal together with accrued interest shall be due and payable December 31, 2002. B. Permissive Prepayment on Note. On or after December 31, 1998, ------------------------------- with the prior written permission of the Exchange, the Company, may, at its option, prepay to the Lender all or any portion of the aggregate principal amount of the Note prior to the final scheduled maturity date of the Note (a "Voluntary Prepayment"). No prepayment of the Note shall be made, however, if, after giving effect thereto and to all other payments of principal of outstanding subordinated loan agreements of the Company, including the return of any secured demand note and the collateral therefor held by the Company, the maturity or accelerated maturity of which are scheduled to occur within 6 months after the date of such Voluntary Prepayment or other prepayment, without reference to any projected profit or loss of the Company: i. in the event that the Company is not operating pursuant to the alternative net capital requirement provided for in paragraph (a) of the Rule (as defined in paragraph D(i) below), the aggregate indebtedness of the Company would exceed 1,000 percentum of its net capital as those terms are defined in the Rule or any successor rule as in effect at the time such Voluntary Prepayment is to be made (or such other percentum as may be made applicable at such time to the Company by the Exchange or the Commission), or ii. in the event that the Company is operating pursuant to such alternative net capital requirement, the net capital of the Company would be less than 5 percentum (or such other percentum as may be applicable to the Company at the time of such Voluntary Prepayment by the Exchange or the Commission) of aggregate debit items computed in accordance with Exhibit A to Rule 15c3-3 under the Act or any successor rule as in effect at such time, or iii. in the event that the Company is registered as a future commission merchant under the CEA, the net capital of the Company (as defined in the CEA or the regulations thereunder less the market value of commodity options purchased by option customers on or subject to the rules of a contract market, provided, however, the deduction for each option customer shall be limited to the amount of customer funds in such option customer's account as in effect at the time of such Voluntary Prepayment) would be less than 7 percentum (or such other percentum as may be made applicable to the Company at the time of such Voluntary Prepayment by the CFTC) of the funds required to be segregated pursuant to the CEA and the regulations thereunder, or iv. the Company's net capital, as defined in the Rule or any successor rule as in effect at the time of such Voluntary Prepayment, would be less than 120 percentum (or such other percentum as may be made applicable to the Company at the time of such Voluntary Prepayment by the Exchange or the Commission) of the minimum dollar amount required by the Rule as in effect at such time (or such other dollar amount as may be made applicable to the Company at the time of such Voluntary Prepayment by the Exchange or the Commission), or v. in the event that the Company is registered as a futures commission merchant under the CEA, its net capital, as defined in the CEA or the regulations thereunder as in effect at the time of such Voluntary Prepayment would be less than 120 percentum (or such other percentum as may be made applicable to the Company at the time of such Voluntary Prepayment by the CFTC) of the minimum dollar amount required by the CEA or the regulations thereunder as in effect at such time (or such other dollar amount as may be made applicable to the Company at the time of such Voluntary Prepayment by the CFTC), or vi. in the event that the Company is subject to the provisions of paragraph (a)(6)(v) or (a)(7)(iv) or (c) (2) (x) (b) (1) of the Rule, the net capital of the Company would be less than the amount required to satisfy the 100% test (or such other percentum test as may be made applicable to the Company at the time of such Voluntary Prepayment by the Exchange or the Commission) stated in such applicable paragraph. If any Voluntary Prepayment or other prepayment of aggregate principal under the Note is made to the Lender prior to a scheduled maturity date, and if the Company's Net Capital is less than the amount required to permit such prepayment pursuant to this section 3.B, the Lender irrevocably agrees to repay the Company the sum so paid to be held by the Company pursuant to the provisions of this Agreement as if such prepayment had never been made; provided, however, that any suit for the recovery of any such prepayment must be commenced within two years of the date of such prepayment. C. Payment. All payments of fees under this Agreement or of -------- principal and interest on the Note shall be made in lawful money of the United States of America and in immediately available funds. Interest on the Note and any other charges to be made hereunder shall be calculated on the basis of actual days elapsed and a year of 360 days. If any principal of or interest on the Note or other amount payable by the Company hereunder falls due on a Saturday, Sunday or a legal holiday in the State of New York, then such due date shall be extended to the next succeeding full Business Day, and in the case of such an extension as to principal, interest shall be payable in respect of such extension. D. Suspended Repayment. The Company's obligation to pay all or a -------------------- portion of the principal amount of the loan hereunder on a scheduled maturity date or any accelerated maturity date ("Amount Due") shall be suspended, and the obligation shall not mature for any period of time during which after giving effect to such payment, together with the payment of any other obligation of the Company under other subordinated loan agreements payable during such period and the return of any secured demand note and the collateral therefor held by the Company and returnable during such period, i. in the event that the Company is not operating pursuant to the alternative net capital requirement provided for in paragraph (a) of Rule 15c3-1 (the _Rule_) under the Securities Exchange Act of 1934, as amended, the aggregate indebtedness of the Company would exceed 1200 percentum of its net capital as those terms are defined in the Rule or any successor rule as in effect at the time payment is to be made (or such other percentum as may be made applicable to the Company at the time of such payment by the Exchange or the Commission), or ii. in the event that the Company is operating pursuant to such alternative net capital requirement, the net capital of the Company would be less than 5 percentum (or such other percentum as may be made applicable to the Company at the time of such payment by the Exchange or the Commission) of aggregated debit items computed in accordance with Exhibit A to Rule 15c3-3 under the Act or any successor rule as in effect at such time, or iii. in the event that the Company is registered as a futures commission merchant under the CEA, the net capital of the Company (as defined in the CEA or the regulations thereunder as in effect at the time of such payment) would be less than 6 percentum (or such other percentum as may be made applicable to the Company at the time of such payment by the CFTC) of the funds required to be segregated pursuant to the CEA and the regulations thereunder, or iv. the Company's net capital, as defined in the Rule or any successor rule as in effect at the time of such payment, would be less than 120 percentum (or such other percentum as may be made applicable to the Company at the time of such payment by the Exchange or the Commission) of the minimum dollar amount required by the Rule as in effect at such time (or such other dollar amount as may be made applicable to the Company at the time of such Voluntary Prepayment by the Exchange or the Commission), or v. in the event that the Company is registered as a futures commission merchant under the CEA, and if its net capital, as defined in the CEA or the regulations thereunder as in effect at the time of such payment, would be less than 120 percentum (or such other percentum as may be made applicable to the Company at the time of such payment by the CFTC) of the minimum dollar amount required by the CEA or the regulations thereunder as in effect at such time (or such other dollar amount as may be made applicable to the Company at the time of such payment by the CFTC), or vi. in the event that the Company is subject to the provisions of paragraph (a) (6) (v) or (a) (7) (iv) or (c) (2) (x) (B) (1) of the Rule, the net capital of the Company would be less than the amount required to satisfy the 1000% test (or such other percentum test as may be made applicable to the Company at the time of such payment by the Exchange or the Commission) stated in such applicable paragraph (the net capital necessary to enable the Company to avoid such suspension of its obligation to pay the principal amount hereof being hereafter referred to as the "Applicable Minimum Capital"). During any such suspension, the Company shall, as promptly as is consistent with the protection of its customers, reduce its business to a condition whereby the Amount Due, with accrued interest thereon, together with any other obligation of the Company under subordinated loan agreements payable at or prior to the payment of the Amount Due can be repaid and any secured demand note and the collateral therefore held by the Company and returnable at or prior to the payment of the Amount Due can be returned, all without Net Capital being below the Applicable Minimum Capital, at which time the obligation to pay the Amount Due shall mature and the Company shall repay the Amount Due, plus accrued interest, not later than upon 5 days' prior written notice to the Exchange. Upon any such suspension, the Company and the Lender recognize and agree that the Company may be summarily suspended by the Exchange. The Company agrees that, if its obligations to pay the Amount Due is ever suspended for a period of six months, it will promptly take whatever steps are necessary to effect a rapid and orderly complete liquidation of its business. The date on which such liquidation commences shall be deemed, for purposes of the Lender's claims hereunder, to constitute the maturity date for each Subordination Agreement of the Company then outstanding but the right of the respective lenders to receive payment under this and such other Subordination Agreements shall remain subordinated, and have priority rank, in accordance with the terms hereof and thereof, respectively. If payment of aggregate principal under the Note is made to the Lender on a scheduled maturity date and, immediately after any such payment, Net Capital is less than the Applicable Minimum Capital, the Lender irrevocably agrees to repay to the Company the sum so paid, to be held by the Company pursuant to the provisions of this Agreement as if such payment had never been made; provided, however, that any suit for the recovery of any such payment must be commenced within two years of the date of such payment. E. Subordination of this Agreement. The Lender irrevocably agrees -------------------------------- that the obligations of the Company with respect to the payment of principal and interest on the Note are and shall be subordinate in right of payment and subject to the prior payment or provision for payment in full of (i) all claims of all other present and future creditors of the Company whose claims are not similarly subordinated (claims under the Note shall rank pari passu with claims similarly subordinate) or are not junior in right of payment to claims under such Note and (ii) claims which are now or hereafter expressly stated in the instruments creating such claims to be senior in right of payment to the claims of the class of claims under the Note, arising out of any matter occurring prior to the maturity date of the Note. In the event of appointment of a receiver or trustee of the Company or in the event of its insolvency or liquidation pursuant to SIPA or otherwise, its bankruptcy, assignment for the benefit of creditors, reorganization whether or not pursuant to bankruptcy laws, or any other marshalling of the assets and liabilities of the Company, the holder of the Note shall not be entitled to participate or share, ratably or otherwise, in the distribution of the assets of the Company until all claims of all other present and future creditors of the Company, whose claims are senior to the Note, have been fully satisfied, or provision has been made therefor. 4. CONDITIONS OF LENDING. The obligation of the Lender to make the ----------------------- loan hereunder is subject to the following conditions precedent: A. Proof of Corporate Action. The Lender shall have received ---------------------------- certified copies of all corporate action taken by the Company to authorize the execution and delivery of this Agreement and the Note, and such other papers as the Lender or its counsel shall reasonably require. B. Delivery of the Note. As of the date of the initial borrowing --------------------- the Lender shall have received from the Company a duly executed Note. 5. AFFIRMATIVE COVENANTS. The Company agrees that until payment in ---------------------- full of the Note, unless the Lender shall otherwise consent in writing it will: A. Financial Statements, Reports, etc. Furnish the Lender: ----------------------------------- i. within ninety (90) days after the end of each audit year of the Company a balance sheet and statements of income, together with supporting schedules, and the FOCUS Report of the Company as at the end of such audit year, all audited and unqualifiedly certified by independent certified public accountants of recognized standing selected by the Company and acceptable to the Lender showing the financial condition of the Company at the close of such year and the results of operations of the Company during such year, along with the Company's computation of Net Capital and the Company's computation of the ratio of Net Capital to Aggregate Debit Items, which computations are to be as of the last day of the audit year; ii. within thirty (30) days after the end of each of the first three audit quarters in each audit year, the FOCUS Report of the Company, certified by a duly authorized officer of the Company, along with the Company's computation of Net Capital and the Company's computation of the ratio of Net Capital to aggregate Debit Items, which computations are to be as of the last day of the audit quarter; iii. promptly as it may occur any amendment to its Articles of Incorporation or Certificate of Incorporation; iv. promptly, from time to time, such other information regarding the operations, business, affairs and financial condition of the Company as the Lender may reasonably request. B. Taxes. Pay and discharge all taxes, assessments and governmental ------ charges or levies imposed on the Company or its income or profits or any of its property prior to the date on which penalties attached hereto, except any such tax, assessment, charge or levy the payment of which may be or is being contested in good faith and by proper proceedings and for which the Company is maintaining adequate reserves. C. Maintenance of Existence; Conduct of Business. Maintain its -------------------------------------------------- existence as a Corporation and all of its rights, privileges and franchises necessary or desirable in the normal conduct of its business, and will conduct its business in an orderly, efficient and regular manner. D. Notices. Furnish the Lender, promptly after knowledge thereof -------- shall have come to the attention of any executive officer of the Company, written notice of (i) any threatened or pending litigation or governmental or administrative proceeding against the Company which would materially and adversely affect the business and property of the Company, (ii) the occurrence of any Event of Default hereunder or any event which with notice or the passage of time or both would constitute such an Event of Default and (iii) the occurrence of any default under any other material agreement to which the Company is a party or any event which with notice or the passage of time or both would constitute such a default; and in the case of (i) , (ii) and (iii) except to the extent such occurrence would not have a material adverse effect on the financial condition of the Company. 6. NEGATIVE COVENANTS. The Company agrees that until payment in full ------------------- of the Note, unless the Lender shall otherwise agree in writing, it will not: A. Limitation of Liens. Create or suffer to exist any security --------------------- interest, mortgage, pledge, lien, charge, encumbrance, assignment or transfer upon or of any of its property or assets now owned and hereafter acquired, excluding, however, from the operation of this covenant: i. liens that exist on the date hereof; ii. securities and commodities now owned or hereafter acquired by the Company in the ordinary course of its business as a broker and dealer in securities; iii. deposits or pledges to secure payment of worker's compensation, unemployment insurance, old age pensions or other social security; iv. deposits or pledges to secure performance of bids, tenders, contracts (other than contracts for the payment of money), or leases, public or statutory obligations, surety or appeal bonds, or other deposits or pledges for purposes of like general nature in the ordinary course of business; v. liens for property taxes not delinquent and liens for taxes or other governmental charges which in good faith are being contested or litigated; vi. mechanics', carriers', workmen's, repairmen's or other like liens arising in the ordinary course of business securing obligations which are not overdue for a period of sixty (60) days, or which are in good faith being contested or litigated; vii. liens in favor of the Company or any wholly-owned subsidiary of the Company; viii. purchase money liens on property or equipment; and ix. liens for the sole purpose of extending, renewing or replacing in whole or in part any of the foregoing. B. Total Liabilities. Permit, at any time, the ratio of aggregate ------------------ indebtedness to Tangible Net Worth to exceed 20.0 to 1.0. C. Sell, Lease, etc. Sell, lease, transfer or otherwise dispose of ----------------- all or substantially all of its assets. D. Dissolution, etc. Dissolve or liquidate. ----------------- E. Net Capital Provision. Permit, at any time: ---------------------- i. Net Capital to be less than $7,500,000.00, which shall include funds advanced pursuant to this Agreement; or ii. Net Capital to be less than 3.0 times the amount of two percent (2%) of total debits as determined per Exhibit A of Rule 15c3-3, and iii. Net Capital in excess of five percent (5%) of total debits as determined per Exhibit A of Rule 15c3-3 to be less than 50% of the amount of Net Capital attributable to the Note. F. Total Capitalization. Permit, at any time, total capital as --------------------- shown in the audited financial statements of the Company (excluding therefrom, however, all indebtedness of the Company to the Lender hereunder), to be less than $9,500,000. 7. A. Events of Default. Upon the occurrence of any one of the ---------------------- events described below in subparagraphs (i) through (v) the Lender by written notice to the Company, with a copy to the Exchange, may declare the unpaid principal amount of and all accrued interest on the Note to be immediately due and payable whereupon the same shall become due and payable without presentment, demand, protest or further notice of any kind. The Lender may rescind and annul any such declaration of acceleration upon written notice to the Company and to the Exchange, but no such rescission or annulment shall impair the Lender's right to declare subsequent accelerations. If on the date such Event of Default occurs, liquidation of the Company has not already commenced, all unpaid principal and accrued interest with respect to all other subordination agreements of the Company then outstanding shall be due and payable, but the rights of the respective lenders thereunder shall remain subordinate as provided in Section 3 of the Subordinated Loan Agreement. i. The making of an application by the Securities Investor Protection Corporation for a decree adjudicating that customers of the Company are in need of protection under SIPA and the failure of the Company to obtain the dismissal of such application within 30 days; or ii. (a) If the Company is not operating pursuant to the alternative net capital requirements provided for in Paragraph (a) of Rule 15c3-1, Aggregate Indebtedness being in excess of 1500 percentum of Net Capital, or (b) if the Company is operating pursuant to such alternative net capital requirements, Net Capital being less than that percentum of Aggregate Debit Items which is required to be maintained by the Company by said Paragraph (a) as from time to time in effect or, if the Company is registered as a futures commission merchant, 4% of the funds required to be segregated under the Commodities Exchange Act and the regulations promulgated thereunder, if greater, in either case throughout a period of 15 consecutive Business Days commencing on the day the Company first determines and notifies the Exchange or the Company first received notice from the Commission of such fact; or iii. Revocation by the Commission of the broker-dealer registration of the Company; or iv. Suspension or revocation for at least ten (10) days by the Exchange of the Company's status as a member organization of the Exchange; or v. Any receivership, insolvency, liquidation pursuant to SIPA or otherwise, bankruptcy, assignment for benefit of creditors, reorganization, whether or not pursuant to bankruptcy laws, or any other marshaling of the assets and liabilities of the Company. B. Events of Acceleration. Upon the occurrence of any one of the ----------------------- events described below in subparagraphs (i) through (v) and after six months from the Effective Date, the Lender by written notice to the Company, with a copy to the Exchange, may accelerate the date on which the unpaid principal amount and all accrued interest on the Note is scheduled to mature, to the last business day of a calendar month which is not less than six months after notice of acceleration is received by the Company and the Exchange. i. Failure to make payment of (a) interest on the Note when due, or (b) principal of the Note when due, on a scheduled maturity date, and any such failure continuing for more than ten (10) business days after the giving of written notice to the Company of such failure; or ii. Any material representation or warranty of the Company set forth in Section 2 of this Agreement is determined to have been inaccurate in a material respect at the time made; or iii. Default in the performance of any covenant set forth in Section 5 of this Agreement, and such default continuing for more than ten (10) business days after written notice thereof; or iv. Default in the compliance with any covenant set forth in Section 6 of this Agreement, and such default continuing for more than ten (10) business days after written notice thereof; or v. Action against the Company is taken by any governmental regulatory authority which specifically affects the Company and which, in the reasonable opinion of the Lender, will materially and adversely affect the Company's ability to pay the principal of, and interest on, the Note. 8. CHANGE OF CONTROL. ------------------ A. Upon the occurrence of a Change of Control (as defined below), the Lender shall have the right to require the Company to repurchase the Note, in whole but not in part, pursuant to the offer described in paragraph (b) below (the "Change of Control Offer") at a purchase price (the "Repurchase Price") in cash equal to the aggregate principal amount thereof plus accrued and unpaid interest thereon, if any, to the Change of Control Payment Date (as defined below). B. Within 30 calendar days subsequent to the date of any Change of Control but no earlier than six months following the Effective Date, the Company shall mail a notice to the Lender stating: (i) that a Change of Control has occurred and that a Change of Control Offer is being made pursuant to this Section 8; and (ii) the Repurchase Price and the date by which the Note shall be tendered for repurchase, which date shall be a date occurring no earlier than six (6) months and no later than seven (7) months subsequent to the date on which such notice is mailed (the "Change of Control Payment Date"); C. On the Change of Control Payment Date the Lender shall surrender the Note to the Company, the Company shall pay to the Lender the Repurchase Price and the Note shall be canceled. If the Note is not so tendered, then, the Note shall continue to accrue interest and the principal will be due at maturity in the same manner as if such Change of Control had not occurred. D. A "Change of Control" means an event or series of events by which (i) any "person" or "group" becomes the "beneficial owner" (each as defined under Section 13d of the Act), directly or indirectly, of 50% or more of the total voting power of all classes of voting stock of the Company or First Albany Companies Inc. ("FACI") or (ii) the Company or FACI consolidates with or merges into any other entity, other than a wholly-owned subsidiary of the Company or FACI, or any other entity merges into the Company or FACI or conveys, transfers or leases all or substantially all of its assets to any entity or group of entities as a result of which the existing shareholders of the Company or FACI immediately prior thereto hold less than 50% of the combined voting power of the voting stock of the surviving entity. 9. MISCELLANEOUS. -------------- A. No Waiver; Remedies Cumulative. No failure on the part of the ------------------------------- Lender to exercise, and no delay in exercising, any right hereunder shall preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. B. Survival of Representations. All representations and warranties ---------------------------- made herein shall survive the making of the loan hereunder and delivery of the Note. C. Construction. This Agreement and the Note shall be deemed to ------------- have been made under the laws of the State of New York, without regard to its principals of conflicts of law, and shall be construed in accordance with the laws of said state. D. Successors and Assigns. This Agreement shall be binding upon, ----------------------- and shall inure to the benefit of, the Company, the Lender and their respective successors and assigns. E. Notices. Notices shall be given to the Lender and the Company by -------- personal delivery or by registered or certified mail, return receipt requested, addressed as follows: If to the Company, to: Chief Financial Officer First Albany Corporation 30 South Pearl Street Albany, New York 12207 If to the Lender, to: Sharon M. Duker 6 Marion Avenue Albany, New York 12203 with a copy to: Steve Fischer Urbach Kahn & Werlin 66 State Street Albany, NY 12207 If to the New York Stock Exchange, to: Finance Coordinator New York Stock Exchange 20 Broad Street New York, New York 10005 F. Accredited Investor/Limitations on Transfer. The Lender -------------------------------- acknowledges and represents that (i) it is an accredited investor, as that term is defined in Rule 501 promulgated under the Securities Act of 1933, as amended (the "Act") by virtue of Lender having a net worth, either individually or with Lender's spouse, of at least $1,000,000, (ii) it is acquiring the Note for investment purposes only and not with a view to, or for sale in connection with, any distribution of the Note, or with any present intention of selling the Note, or any part thereof, and (iii) it will not transfer the Note, or any part thereof, unless such transfer complies with the registration requirements of the Act or an exemption from such registration requirements is applicable to such transfer. G. Disclaimer. The Lender, by accepting the Note, irrevocably ----------- agrees that its making of the loans evidenced by the Note is not being made in reliance upon the standing of the Company as a member organization of the Exchange or upon the Exchange's surveillance of the Company's financial position or its compliance with the constitution, rules and practices of the Exchange. The Lender has made such investigation of the Company and its Officers and employees as the Lender deems necessary and appropriate under the circumstances. The Lender is not relying upon the Exchange to provide any information concerning or relating to the Company and agrees that the Exchange has no responsibility to disclose to the Lender any information concerning or relating to the Company which it may now or in the future have. The Lender agrees that neither the Exchange, its special trust fund, nor any director, officer, trustee or employee of the Exchange, shall be liable to the Lender with respect to this Agreement or the Note or the repayment thereof of any interest thereon. H. Assignment. The Note may not be transferred, sold, assigned, ----------- pledged or otherwise encumbered or otherwise disposed of, and no lien, charge or other encumbrance may be created or permitted to be created hereon without the prior written consent of the Exchange and the Company, except that the Company shall not withhold its consent to such transfer to a member of Lender's immediate family. Any transfer not permitted by the foregoing shall be void. I. Exchange Approval. This Agreement shall not be modified or ------------------ amended without the prior written approval of the Exchange. J. Entire Agreement. This Agreement and the Note embody the entire ----------------- agreement as to the subject matter hereof between the Company and the Lender and no other evidence of such agreement has been or will be executed without the prior written consent of the Exchange. K. Cancellation. Neither this Agreement nor the Note shall be ------------- subject to cancellation by either party except as may be permitted hereunder. L. Notice to CFTC. So long as the Company is a futures commission --------------- merchant as that term is defined in the Commodity Exchange Act, the Company agrees, consistent with the requirements of Section 1.17(h) of the regulations of the CFTC, that: i. whenever prior written notice by the Company to the Exchange is required pursuant to the provisions of this Agreement, the same prior written notice shall be given by the Company to (a) the CFTC at its principal office in Washington, D.C., Attention: Chief Accountant of Division of Trading and Markets, and/or (b) the commodity exchange of which the Company is a member and which is then designated by the CFTC as the Company's designated self-regulatory organization (the ("DSRO"), and ii. whenever prior written consent, permission or approval of the Exchange is required pursuant to the provisions of this Agreement, the Company shall also obtain the prior written consent, permission or approval of the CFTC and/or of the DSRO, and iii. whenever the Company receives written notice of acceleration of maturity pursuant to the provisions of this Agreement, the Company shall promptly give written notice thereof to the CFTC at the address above stated and/or the DSRO. iv. Status of Proceeds. The proceeds of the loan evidenced hereby shall be dealt with in all respects as capital of the Company, shall be subject to the risks of its business, and may be deposited in an account or accounts in the Company's name in any bank or trust company. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day of the year first written above. FIRST ALBANY CORPORATION LENDER: By: /s/ ALAN P. GOLDBERG /s/ SHARON M. DUKER - ------------------------- -------------------- Name: Sharon M. Duker Title: THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAS BEEN TAKEN FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND THIS OPTION MAY NOT BE SOLD OR TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT COVERING IT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) FROM THE TRANSFEROR REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. OPTION TO PURCHASE COMMON STOCK OF FIRST ALBANY COMPANIES INC. 1.a. This certifies that, subject to the terms set forth below, in consideration of Sharon M. Duker, (the "Holder") making a loan of an additional Two Million Five Hundred Thousand ($2,500,000) Dollars (the Indebtedness") to a wholly-owned subsidiary, First Albany Corporation, of FIRST ALBANY COMPANIES INC. (the "Company"), the Company grants to Holder the option to purchase, at any time during the Exercise Period (as defined below) 26,891 shares of its common stock, par value $.01 per share, (the "Common Stock_) at a purchase price of $18.594 per share (the "Purchase Price"). The Purchase Price shall be paid by the discharge of Five Hundred Thousand ($500,000) Dollars of the Indebtedness. b. The Exercise Period shall begin on the date hereof and end at 5:00 p.m., New York time on the earlier of (i) 5:00 p.m., New York time, on the final scheduled maturity date of the Note (as defined in the Subordinated Loan Agreement between the Holder and the Company dated December 23, 1997 (the "Agreement")), (ii) the Change of Control Payment Date (as defined in the Agreement); and (iii) the date of any Voluntary Prepayment (as defined in the Agreement). Notwithstanding anything contained herein to the contrary, any exercise of this option during the period beginning six months prior to the final scheduled maturity date shall not be effective until the final scheduled maturity date. c. This Option may be exercised by surrender to the Company, at its principal executive offices, of the subscription form attached hereto duly executed and the simultaneous delivery to the Company of a document, in form and substance acceptable to the Company, evidencing the discharge of Five Hundred Thousand ($500,000) Dollars of the Indebtedness. d. The Company agrees to give the Holder thirty (30) days prior written notice of any Voluntary Prepayment. e. All notices sent to the Company and the Holder under this Option shall be sent by certified mail, return receipt requested, or by personal delivery addressed to the Company's General Counsel at its principal executive offices, or addressed to the Holder at the address provided in the Agreement or at such other address as the Holder may give to the Company pursuant to the Agreement, respectively. f. Certificates for shares of Common Stock purchased upon exercise of this Option will be delivered by the Company to the Holder or his designee within thirty (30) business days after the exercise of the Option. g. The Common Stock issuable upon the exercise of this Option will be deemed to have been issued on the date (the "Exercise Date") the Company receives satisfactory evidence of payment of the Purchase Price, and the Holder will be deemed for all purposes to have become the record holder of such Common Stock on the Exercise Date. h. The issuance of certificates for shares of Common Stock upon exercise of this Option shall be made subject to, and the Holder shall be responsible for, any and all charges to the Holder for any issuance tax in respect thereof or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Common Stock. Each share of Common Stock issuable upon exercise of this Option will, upon payment of the Purchase Price thereof, be fully paid and nonassessable and free from all liens and charges with respect to the issuance thereof. i. After the date hereof and prior to the exercise of this Option, the aggregate number of shares subject to this Option and the exercise price shall be adjusted to reflect any stock splits or stock dividends declared with respect to the Common Stock. 2. The Holder shall have no rights as a shareholder in respect of shares covered by the Option prior to exercise of this Option with respect thereto and until the Holder has made payment therefor as herein provided, and the Holder shall have no rights with respect to such shares not expressly conferred by this Option. 3. The Company shall at all times during the term of this Option reserve and keep available such number of shares of its Common Stock as will be sufficient to satisfy the requirements of this Option. 4. This Option shall be binding upon the Company's successors and assigns. This Option shall not be transferred by the Holder without the prior written consent of the Company; any such transfer without the consent of the Company will render this Option void. 5. This Option shall be construed and enforced in accordance with and governed by the laws of New York without regard to its principles of conflicts of laws. Any action or proceeding brought by the Holder or the Company against the other arising out of or related to the Option shall be brought in a State or Federal Court of competent jurisdiction located in Albany, New York and the Holder and the Company hereby submit to the jurisdiction of such courts for the purposes of any such action or proceeding. 6. The Holder agrees that he will comply with all applicable laws, rules and regulations of all Federal and State securities regulators, including but not limited to the Securities and Exchange Commission, the New York Stock Exchange, the National Association of Securities Dealers and applicable state securities regulators with respect to disclosure, filings and any other requirements resulting in any way from the issuance of this Option other than those required to be made by the Company in accordance with applicable Federal and State securities laws and regulations. IN WITNESS WHEREOF, the parties have signed this Option intending to be legally bound hereto. DATED: December 23, 1997 FIRST ALBANY COMPANIES INC. /s/ ALAN P. GOLDBERG -------------------- President HOLDER: /s/ SHARON M. DUKER --------------------- Sharon M. Duker SUBSCRIPTION FORM (to the executed only upon exercise of Option) The undersigned Holder of the Option granted pursuant to the Option Agreement dated December 23, 1997 the "Option Agreement"), irrevocably exercises this Option to purchase all such shares of Common Stock of First Albany Companies Inc. as are granted as of the date hereof pursuant to the Option Agreement and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Option. DATED: Number of Shares: __________________ __________________________________ (Signature of Holder) __________________________________ (Name of Holder) __________________________________ Street Address __________________________________ (City) (State) (Zip) -----END PRIVACY-ENHANCED MESSAGE-----