DEF 14A
SCHEDULE 14A
(Rule 14a-101)
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE 14A
INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934
Filed by the Registrant þ
Filed by a Party other than the
Registrant o
Check the appropriate box:
o Preliminary
Proxy Statement
o Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
þ Definitive Proxy
Statement
o Definitive
Additional Materials
o Soliciting
Material Pursuant to Section
240.14a-12
First Albany Companies Inc.
(Name of Registrant as Specified In
Its Charter)
(Name of Person(s) Filing Proxy
Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
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þ
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No fee required.
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o
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1)
and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 0-11
(Set forth the amount on which the filing fee is calculated and
state how it was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by
Exchange Act
Rule 0-11(a)
(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the
date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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August 31,
2007
Dear Fellow Shareholder:
Enclosed are the proxy materials for the 2007 annual meeting of
First Albany Companies Inc. (the Company). Please
read those materials carefully.
As you may know, on May 14, 2007, the Company announced
that the Board of Directors unanimously approved an agreement to
recapitalize and receive a $50 million equity investment
from an affiliate of MatlinPatterson Global Opportunities
Partners II LP, which is a global private equity firm with
approximately $4 billion under management. This capital
investment will provide the Company with resources to grow its
business, to seek to acquire other securities or advisory
businesses, to focus on its core investment products and
services strengths, to provide incentives to its employees and
to better meet the needs of its clients. This transaction
will complete a year of restructuring and repositioning for the
Company.
After experiencing recurring losses, in the spring of 2006 the
Board of Directors retained Freeman & Co. Securities
LLC as its financial advisor to evaluate and entertain
alternatives for recapitalization of the Company. In addition,
the Board of Directors of the Company (the Board)
formed a Special Committee to examine strategic alternatives,
evaluate proposals from potential investors and to recommend to
the Board the best course of action for the Company and its
shareholders. Throughout 2006 and early 2007, the Company had
active conversations with numerous potential investors, but
ultimately received no offers. In the first quarter of 2007,
MatlinPatterson FA Acquisition LLC (MatlinPatterson)
expressed interest in a transaction. Following intensive
discussions and consultation with financial advisors and legal
counsel, the Special Committee unanimously recommended to the
Board of Directors that the MatlinPatterson proposal was in the
best interests of the Company and its shareholders, and the
Board of Directors unanimously approved the transaction.
This years annual meeting is most important since you will
be asked, among other things, to consider, act upon and approve
five proposals, together authorizing the transaction to
recapitalize the Company. In such recapitalization transaction,
MatlinPatterson agreed to purchase 33,333,333 newly-issued
shares of common stock of the Company (subject to upward
adjustment) for an aggregate cash purchase price of
$50 million. Upon consummation of the transaction,
MatlinPatterson is currently expected to control between 70% and
75% of the voting power of the Company (between 60% and 65% on a
fully diluted basis), based on the number of shares of common
stock outstanding on June 25, 2007, and after giving effect
to an increase in the number of Purchased Shares that may result
from the adjustment provisions of the Investment Agreement and
which may further increase the number of Purchased Shares.
This transaction has important implications for your
investment.
In connection with the recapitalization transaction:
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The Special Committee unanimously recommended, and the Board of
Directors unanimously approved the transaction;
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Freeman & Co. Securities LLC, the financial advisor of
the Company, provided a fairness opinion that, from a financial
point of view, the consideration for the newly-issued shares is
fair to the Company;
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Peter McNierney, the Companys President and Chief
Executive Officer, following consummation of the transaction,
will become President and Chief Operating Officer;
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Lee Fensterstock will take over management of the Company as
Chairman and Chief Executive Officer; Mr. Fensterstock has
over 20 years of experience in the securities industry,
having served as President and Chief Operating Officer of
Gruntal & Co., Chairman and
Co-Chief
Executive Officer of Bonds Direct Securities Inc. and Managing
Director of Jefferies & Co.; and
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24 of the Companys employees, comprising substantially all
of the most senior management of the Company, have signed
non-compete and non-solicit agreements conditioned on the
closing of the recapitalization transaction which we believe is
indicative of their commitment to the future of the Company if
the recapitalization transaction is completed.
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In order for the transaction to proceed, it is important that
you vote FOR the five recapitalization proposals
(Proposals 2 through 6) in the attached proxy.
Your vote is very important. We hope
that you are planning to attend the annual meeting personally
and we look forward to seeing you. Whether or not you are
able to attend in person, it is very important that your shares
be represented at the annual meeting. Accordingly, the return of
the enclosed proxy as soon as possible will ensure that your
shares are represented at the annual meeting. In addition to
using the traditional proxy card, most shareholders also have
the choice of voting over the Internet or by telephone.
Since the approval of some of the recapitalization proposals
requires the affirmative vote of holders of a majority of the
outstanding shares of the Companys common stock, the
failure to vote your shares will have the same effect as
voting against approval and adoption of such proposal.
If you have any questions concerning these documents, please
feel free to contact:
MacKenzie Partners, Inc.
105 Madison Avenue
New York, NY 10016
Call Collect:
(212) 929-5500
or
Toll Free:
(800) 322-2885
On behalf of the Board of Directors and management of First
Albany Companies Inc., I would like to thank you for your
continued support and confidence.
Sincerely yours,
George C. McNamee
Chairman of the Board
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS
TO BE HELD SEPTEMBER 21,
2007
NOTICE IS HEREBY GIVEN that the annual meeting of the
shareholders of First Albany Companies Inc. (the
Company) will be held at the offices of Sidley
Austin LLP, 787 Seventh Avenue, 23rd Floor, New York, New
York, on September 21, 2007 at 10:00 a.m. (EDT), for
the following purposes:
(1) To elect three (3) directors whose terms will
expire at the 2010 annual meeting of shareholders;
(2) To consider and act upon a proposal to approve the
Companys issuance and sale of shares of common stock to
certain qualified investors in a private placement;
(3) To consider and act upon a proposal to amend the
Companys Certificate of Incorporation to increase the
authorized share capital of the Company from
50,000,000 shares of common stock to
100,000,000 shares of common stock with the same par value
of $0.01 per share;
(4) To consider and act upon a proposal to amend the
Companys Certificate of Incorporation to increase the
authorized share capital of the Company from 500,000 shares
of preferred stock to 1,500,000 shares of preferred stock
with the same par value of $1.00 per share;
(5) To consider and act upon a proposal to amend the
Companys Certificate of Incorporation to limit the
liability of the directors of the Company to the extent
permitted under Section 402(b) of the New York Business
Corporation Law (the NYBCL);
(6) To consider and act upon a proposal to approve the
adoption of the First Albany Companies Inc. 2007 Incentive
Compensation Plan;
(7) To consider and act upon a proposal to ratify the
appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending
December 31, 2007;
(8) In the event there are insufficient votes at the time
of the annual meeting to adopt Proposals 2, 3, 4, 5 and 6,
to consider and act upon a proposal to adjourn or postpone the
annual meeting in order to solicit additional proxies; and
(9) To consider and act upon such other business as may
properly come before the meeting or any adjournment thereof.
We ask that you give it your careful attention.
The First Albany Companies Inc. Board of Directors
unanimously recommends that the shareholders vote
(1) FOR the election of the three
(3) persons named as nominees under Election of
Directors; (2) FOR the proposal to
approve the Companys issuance and sale of shares of common
stock to certain qualified investors in a private placement;
(3) FOR the proposal to amend the
Companys Certificate of Incorporation to increase the
authorized share capital of the Company from
50,000,000 shares of common stock to
100,000,000 shares of common stock with the same par value
of $0.01 per share, (4) FOR the proposal to
amend the Companys Certificate of Incorporation to
increase the authorized share capital of the Company from
500,000 shares of preferred stock to 1,500,000 shares
of preferred stock with the same par value of $1.00 per share;
(5) FOR the proposal to amend the
Companys Certificate of Incorporation to limit the
liability of the directors of the Company to the extent
permitted under Section 402(b) of the NYBCL;
(6) FOR the proposal to adopt the First Albany
Companies Inc. 2007 Incentive Compensation Plan;
(7) FOR the ratification of the appointment of
PricewaterhouseCoopers LLP as independent accountants of the
Company for the fiscal year ending December 31, 2007; and
(8) FOR the proposal to adjourn or postpone the
annual meeting in order to solicit additional proxies in the
event there are insufficient votes at the time of the annual
meeting to adopt Proposals 2, 3, 4, 5 and 6.
As in the past, we will be reporting on your Companys
activities and you will have an opportunity to ask questions
about its operations.
Holders of common stock of record as of the close of business on
August 10, 2007 are entitled to receive notice of and vote
at the annual meeting of the shareholders. A list of such
shareholders may be examined at the annual meeting.
We hope that you are planning to attend the annual meeting
personally and we look forward to seeing you. Whether or not you
are able to attend in person, it is important that your shares
be represented at the annual meeting. For that reason we ask
that you promptly sign, date, and mail the enclosed proxy card
in the return envelope provided. You may also have the option of
voting over the Internet or by telephone. Please refer to your
proxy materials or the information forwarded by your bank,
broker or other holder of record to see which voting methods are
available to you. Shareholders who attend the annual meeting may
withdraw their proxies and vote in person.
By Order of the Board of Directors
Peter J. McNierney
President and Chief Executive Officer
Albany, New York
August 31, 2007
Table of
Contents
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Page No.
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Appendix A
Investment Agreement, form of Registration Rights Agreement,
Voting Agreements and Amendment to Rights Agreement
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Appendix B
Freeman & Co. Securities LLC Fairness Opinion
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Appendix C
Amendment to the Certificate of Incorporation
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Appendix D
Financial Statements of the Company for the fiscal year ended
December 31, 2006 and for the period ended June 30,
2007
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677
Broadway
Albany, New York
12207-2990
PROXY STATEMENT
QUESTIONS AND ANSWERS ABOUT THIS PROXY
MATERIAL AND VOTING
The following are some questions that you, as a shareholder
of First Albany Companies Inc., may have regarding the private
placement and the other matters being considered at the annual
meeting of shareholders and the answers to those questions.
First Albany Companies Inc. urges you to read carefully the
remainder of this document because the information in this
section does not provide all the information that might be
important to you with respect to the private placement and the
other matters being considered at the annual meeting. Additional
important information is also contained in the appendices to,
and the documents incorporated by reference into, this document.
The words we, our, and us as
used in this proxy statement refer to First Albany Companies
Inc. and its subsidiaries.
Why am I
receiving these materials?
We sent you this proxy statement and the enclosed proxy card
because the Board of Directors (the Board or
Board of Directors) of First Albany Companies Inc.
(sometimes referred to as the Company or First
Albany) is soliciting your proxy to vote at our annual
meeting of the shareholders to be held on September 21,
2007. You are invited to attend the annual meeting to vote on
the Proposals described in this proxy statement. However, you do
not need to attend the meeting to vote your shares. Instead, you
may simply complete, sign and return the enclosed proxy card.
We intend to mail this proxy statement and accompanying proxy
card on or about August 31, 2007 to all shareholders of
record entitled to vote at the annual meeting.
What am I
voting on?
There are eight matters scheduled for a vote at the annual
meeting:
(1) To elect three (3) directors whose terms will
expire at the 2010 annual meeting of shareholders;
(2) To consider and act upon a proposal to approve the
Companys issuance and sale of shares of common stock to
certain qualified investors in a private placement;
(3) To consider and act upon a proposal to amend the
Companys Certificate of Incorporation to increase the
authorized share capital of the Company from
50,000,000 shares of common stock to
100,000,000 shares of common stock with the same par value
of $0.01 per share;
(4) To consider and act upon a proposal to amend the
Companys Certificate of Incorporation to increase the
authorized share capital of the Company from 500,000 shares
of preferred stock to 1,500,000 shares of preferred stock
with the same par value of $1.00 per share;
(5) To consider and act upon a proposal to amend the
Companys Certificate of Incorporation to limit the
liability of the directors of the Company to the extent
permitted under Section 402(b) of the New York Business
Corporation Law (the NYBCL);
(6) To consider and act upon a proposal to approve the
adoption of the First Albany Companies Inc. 2007 Incentive
Compensation Plan (the 2007 Plan); and
(7) To consider and act upon a proposal to ratify the
appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending
December 31, 2007.
(8) In the event there are insufficient votes at the time
of the annual meeting to adopt Proposals 2, 3, 4, 5 and 6,
to consider and act upon a proposal to adjourn or postpone the
annual meeting in order to solicit additional proxies.
(9) To consider and act upon such other business as may
properly come before the meeting or any adjournment thereof.
What is
the Private Placement described in Proposal 2?
On May 14, 2007, we entered into an investment agreement
(the Investment Agreement) pursuant to which we
agreed to issue and sell to MatlinPatterson FA Acquisition LLC
(MatlinPatterson) 33,333,333 shares, subject to
upward adjustment as described in the Investment Agreement, of
the common stock, par value $0.01 per share, of the Company (the
Purchased Shares) for an aggregate cash purchase
price of $50 million (the Private Placement).
If Proposal 2, Proposal 3, Proposal 4,
Proposal 5 and Proposal 6 (collectively, the
Investment Proposals) are approved by our
shareholders and the Private Placement is completed, we will
sell and issue the Purchased Shares currently expected to
represent, after the closing, between 70% and 75% of our
outstanding common stock (between 60% and 65% on a fully-diluted
basis), based on the number of shares outstanding on
June 25, 2007, and after giving effect to an increase in
the number of Purchased Shares that may result from the
adjustment provisions of the Investment Agreement and which may
further increase the number of Purchased Shares.
Why is
the Company selling the Purchased Shares?
We have experienced recurring losses and as of June 30,
2007, had cash of approximately $3.5 million and working
capital of approximately $17 million. Continuing losses
will adversely impact the Companys liquidity and net
capital. We need additional capital to pursue our strategic
objectives. If the Investment Proposals are approved by our
shareholders, we would be authorized to issue the Purchased
Shares and upon satisfaction of the other conditions to closing
the Private Placement, we would receive $50 million of
gross proceeds from the sale of Purchased Shares, less
transaction fees and expenses. The net proceeds from the Private
Placement would have a positive impact on our liquidity and net
capital and we believe they would improve our ability to pursue
our strategic objectives. It is currently expected that
approximately $20 million of the proceeds from the Private
Placement will be invested in the Companys subsidiary
Descap Securities Inc. to enable it to position more products
and take advantage of opportunities that we believe to exist in
the mortgage and asset-backed securities markets and to issue
primary debt financing. In addition, we currently expect that up
to $10 million will be committed to a fund managed by the
Companys subsidiary, FA Technology Ventures Corporation,
which invests in the emerging growth sectors of information and
energy technology. In addition, pursuant to the Term Loan and
Capital Lease Waiver described in our quarterly report on
Form 10-Q
for the period ended June 30, 2006, we have agreed that
upon the closing of the Private Placement and the DEPFA
Transaction we will repay all outstanding loan and lease
obligations to a certain lender. If the DEPFA Transaction closes
prior to the Private Placement, we have agreed to prepay the
aggregate amounts of loan and lease obligations equal to 75% of
the net proceeds received by the Company and then pay the
remaining amounts upon closing of the Private Placement. We
believe the remaining proceeds from the Private Placement will
also provide us with additional resources to grow our
businesses, to seek to acquire other securities or advisory
businesses, to focus on our core investment products and service
strengths, to provide incentives to employees and to better meet
the needs of our clients, and we may also repay some or all of
our indebtedness. Immediately following the closing of the
Private Placement, we expect the Company to have over
$50 million in cash and working capital in excess of
$58 million and we believe the proceeds from the Private
Placement will allow the Company to increase existing capital
levels with each of its broker dealers.
We believe that the Private Placement, together with the new
incentive compensation plan that is proposed to be adopted in
connection with the Private Placement, will further and promote
the interests of the Company and our
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shareholders by improving our ability to retain and motivate our
current employees and to attract additional employees who can
help us obtain our strategic objectives. In the past, we have
lost a significant number of investment banking, brokerage,
research and other professionals and, more recently, we lost
several senior professionals. Continuing losses of
professionals, particularly key senior professionals or groups
of related professionals, could impair our ability to secure or
successfully complete client engagements, materially and
adversely affect our revenues and make it more difficult to
return to profitability. Although we could still lose more
employees in the future, we believe that completion of the
Private Placement and adoption of the proposed new incentive
compensation plan will significantly improve our ability to
retain key employees. This belief is strengthened by the fact
that 24 of our employees, comprising substantially all of the
most senior management of the Company, have signed non-compete
and non-solicit agreements conditioned on the closing of the
recapitalization transaction.
We also believe that the Private Placement will strengthen our
investor base with the addition of a new experienced investor
who will have a significant stake in our long-term success and
will be motivated to provide the support and assistance to
protect and enhance its investment. We also believe we will
strengthen our Board with the addition of new directors who have
significant experience in advising comparable companies.
What will
happen if Proposal 2 is not approved?
Approval of each of the Investment Proposals is a condition to
closing of the Private Placement or is otherwise contemplated
thereby. In the event that Proposal 2 is not approved, we
will not complete the Private Placement or receive any of the
proceeds from the sale of the Purchased Shares as described in
Proposal 2. We also will not amend our Certificate of
Incorporation as described in Proposal 3 and
Proposal 4 and we will not adopt the 2007 Plan as described
in Proposal 6, even if one or more of such other Investment
Proposals is approved by the shareholders. However, if
Proposal 5 is approved by the shareholders, our Certificate
of Incorporation will still be amended as provided in that
Proposal.
To what
extent will the issuance of the Purchased Shares dilute our
existing shareholders percentage ownership of the
Company?
Our shareholders will incur immediate and substantial dilution
of their percentage ownership in the Company if the Investment
Proposals are approved by the shareholders and the Purchased
Shares are issued. Based on the number of shares outstanding on
June 25, 2007, the aggregate ownership of all holders of
our outstanding common stock immediately prior to the issuance
of the Purchased Shares is currently expected to be reduced to
between 25% and 30% of the outstanding shares of common stock
(between 22% and 26% on a fully diluted basis) based on the
number of shares of common stock outstanding on June 25,
2007, and after giving effect to an increase in the number of
Purchased Shares that may result from the adjustment provisions
of the Investment Agreement and which may further increase the
number of Purchased Shares. The aggregate ownership of the
Companys existing affiliated shareholders is expected to
be reduced to between 5% and 6% (between 7% and 8% on a fully
diluted basis) and the aggregate ownership of the Companys
existing non-affiliated shareholders is expect to be reduced to
between 19% and 25% (between 14% and 19% on a fully diluted
basis), in each case based on the number of shares of common
stock outstanding on June 25, 2007, and after giving effect
to an increase in the number of Purchased Shares that may result
from the adjustment provisions of the Investment Agreement and
which may further increase the number of Purchased Shares.
Why is
the Company seeking shareholder approval for the Private
Placement?
We are subject to the rules of the NASDAQ Stock Market because
our common stock is currently listed on the NASDAQ Global
Market. These rules require us to obtain shareholder approval
for any issuance or sale of common stock that is (i) equal
to 20% or more of our outstanding common stock before such an
issuance or sale and (ii) at a price per share below the
greater of book value or market value of such issuance or sale.
These rules also require shareholder approval of any issuance of
voting stock that would result in a change of control of the
issuer, which is defined as the ownership by any shareholder or
group of affiliated shareholders of 20% or more of an
issuers voting stock immediately following the issuance.
The rules apply to the sale and issuance of the Purchased Shares
both because (i) the issuance of the Purchased Shares will
result in a change of control of the Company and (ii) the
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maximum price of the Purchased Shares to be issued pursuant to
the Investment agreement is $1.50 per share, compared to the
$1.60 per share closing price of our common stock on the NASDAQ
Global Market on May 11, 2007, the last business day prior
to entry into the agreement to sell the Purchased Shares and the
Purchased Shares represent more than 20% of our common stock
outstanding immediately prior to the completion of the Private
Placement. For these reasons, we are required under the NASDAQ
Marketplace Rules to obtain shareholder approval prior to
issuing the Purchased Shares.
In addition, under the Investment Agreement, we agreed to seek
the approval of the Private Placement at a meeting of our
shareholders to be held as soon as practicable after the
execution of the Investment Agreement.
Why is
the Company seeking to increase the authorized number of shares
of common stock as described in Proposal 3?
We do not currently have sufficient authorized shares to
complete the Private Placement described in Proposal 2. To
complete the Private Placement and issue the Purchased Shares,
we need to substantially increase the number of shares of our
common stock authorized for issuance under our Certificate of
Incorporation. It is a condition to the completion of the
Private Placement that our shareholders approve Proposal 3.
Our current Certificate of Incorporation authorizes
50,000,000 shares of common stock for issuance. As of
June 25, 2007, there were approximately
16,040,000 shares of our common stock outstanding and an
additional approximately 5,233,000 shares reserved for
issuance upon exercise of outstanding options and warrants and
reserved for future issuance under our equity compensation
plans. As a result, as of June 25, 2007, there were only
approximately 28,727,000 authorized shares of our common stock
available for issuance. We have proposed increasing the
authorized number of shares of common stock to
100,000,000 shares to permit completion of the Private
Placement and to provide for additional authorized shares of
common stock to issue in the future. The additional shares may
be issued for various purposes without further shareholder
approval, except to the extent required by applicable NASDAQ
Marketplace Rules. The purposes may include raising capital,
providing equity incentives to employees, officers, directors or
consultants, establishing strategic relationships with other
companies, expanding our business or product lines through the
acquisition of other businesses or products, and other corporate
purposes.
What will
happen if Proposal 3 is not approved?
If Proposal 3 is not approved, we will not amend our
Certificate of Incorporation as provided in Proposal 3. As
noted above, if our Certificate of Incorporation is not amended
to increase the authorized number of shares of common stock, we
will not be able to complete the Private Placement. If
Proposal 3 is not approved, we will not complete the
Private Placement or receive any of the proceeds from the sale
of the Purchased Shares as described in Proposal 2, we will
not amend our Certificate of Incorporation as described in
Proposal 4 and we will not adopt the 2007 Plan as described
in Proposal 6, even if one or more of such other Investment
Proposals is approved by the shareholders. However, if
Proposal 5 is approved by the shareholders, our Certificate
of Incorporation will still be amended as provided in that
Proposal.
Why is
the Company seeking to increase the authorized number of shares
of preferred stock as described in Proposal 4?
Under the Investment Agreement, we agreed to seek the
shareholders approval of an amendment to our Certificate
of Incorporation to increase the authorized number of shares of
preferred stock from 500,000 to 1,500,000. The additional shares
of preferred stock also relate to the Rights Agreement we
entered into on March 30, 1998 with our transfer agent,
American Stock Transfer & Trust Company (the
Rights Agreement), designed to provide for fair and
equal treatment for all shareholders in the event that an
unsolicited attempt is made to acquire our Company. The Rights
Agreement gives each holder of common stock the right to
purchase
1/100th share
of preferred stock upon certain triggering events. In connection
with the authorization of 100,000,000 shares of common
stock in accordance with Proposal 3, 1,000,000 shares
of preferred stock will be needed to support these rights. The
additional shares of authorized preferred stock may also be
issued for various other purposes, including raising capital,
providing equity incentives to employees, officers, directors or
consultants, establishing strategic relationships with other
companies, expanding our business or product lines through the
acquisition of other businesses or products, and other corporate
purposes.
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What will
happen if Proposal 4 is not approved?
If Proposal 4 is not approved, we will not amend our
Certificate of Incorporation as provided in Proposal 4.
Approval of the amendment to our Certificate of Incorporation to
increase the number of authorized shares of our preferred stock
is a condition to the closing of the Private Placement. If the
shareholders do not approve Proposal 4, unless
MatlinPatterson waives the condition, we will not complete the
Private Placement or receive any of the proceeds from the sale
of the Purchased Shares as described in Proposal 2, we will
not amend our Certificate of Incorporation as described in
Proposal 3 and we will not adopt the 2007 Plan as described
in Proposal 6, even if one or more of such other Proposals
is approved by the shareholders. However, if Proposal 5 is
approved by the shareholders, our Certificate of Incorporation
will still be amended as provided in that Proposal.
Why is
the Company seeking to limit the liability of the directors of
the Company as described in Proposal 5?
Under the Investment Agreement, we agreed to seek the
shareholders approval of an amendment to our Certificate
of Incorporation limiting the liability of the directors of the
Company to the extent permitted under Section 402(b) of the
NYBCL at the annual meeting. The Board believes that limiting
the directors personal liability as permitted by the New
York statute will enhance the ability of the Company to attract
and retain highly qualified directors in the future. In
addition, the threat of personal liability may have an adverse
effect on the decision-making process of directors. The proposed
amendment may also encourage directors to make entrepreneurial
decisions that they believe to be in the best interest of the
Company with less threat of personal liability for damages for
breach of their duty of care.
What will
happen if Proposal 5 is not approved?
Approval of the amendment to our Certificate of Incorporation to
limit the liability of the directors of the Company to the
extent permitted under Section 402(b) of the NYBCL is a
condition to the closing of the Private Placement. If the
shareholders do not approve Proposal 5, unless
MatlinPatterson waives the condition, we will not complete the
Private Placement or receive any of the proceeds from the sale
of the Purchased Shares as described in Proposal 2, we will
not amend our Certificate of Incorporation as described in
Proposal 3 and Proposal 4 and we will not adopt the
2007 Plan as described in Proposal 6, even if one or more
of such other Proposals is approved by the shareholders.
However, if Proposal 5 is approved by the shareholders, our
Certificate of Incorporation will still be amended as provided
in that Proposal.
Why is
the Company seeking to put into effect the new First Albany
Companies Inc. 2007 Incentive Compensation Plan as described in
Proposal 6?
The 2007 Plan is designed to advance the interests of the
Company by providing a means through which incentive awards can
be granted to officers, other employees and persons who provide
services to the Company and its subsidiaries. By making grants
of awards under this plan, the Company can attract, retain and
reward such persons and, by linking compensation measures to
performance, the Company can provide incentives for the creation
of shareholder value. In addition, the interests of the
Companys shareholders and the award recipients can be more
closely aligned by giving the recipients an interest in the
long-term success of the Company.
Furthermore, the obligation of MatlinPatterson to complete the
Private Placement is conditioned on at least 22 of 27 designated
key employees of the Company becoming bound by certain
non-competition and non-solicitation covenants conditioned on
the closing of the Private Placement and remaining employed by
the Company at the closing of the Private Placement. Twenty-four
of such 27 designated key employees have already entered into
such agreements to become effective as of the closing. The terms
on which such designated key employees entered into such
non-competition and non-solicitation covenants require that the
Company grant to such employees certain awards of restricted
stock units under the 2007 Plan if the Private Placement closes.
The Company expects to enter into an employment agreement with
Mr. Lee Fensterstock that will become effective as of the
closing of the Private Placement. Pending the closing of the
Private Placement, Mr. Fensterstock has been engaged by the
Company as a consultant. The Company has also entered into an
employment agreement with Mr. Peter McNierney and an
amendment to the existing employment agreement of Mr. Brian
Coad that will each become effective as of the
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closing of the Private Placement. Under the terms of these
employment agreements, following the closing of the Private
Placement, Mr. Fensterstock will serve as the new Chairman
of the Board and Chief Executive Officer of the Company,
Mr. McNierney will become the President and Chief Operating
Officer and Mr. Coad will remain the Chief Financial
Officer. If the Private Placement is completed, these employment
agreements (or amendment in the case of Mr. Coad) will also
obligate the Company to award certain restricted stock units to
such executives under the 2007 Plan. Accordingly, it is
contemplated that, as of the closing of the Private Placement,
awards of restricted stock units in respect of up to
6.75 million shares of common stock will be made or
committed to be made under the 2007 Plan, representing between
9.2% and 10.7% of the shares of common stock currently expected
to be outstanding immediately following the closing of the
Private Placement on a fully diluted basis, based on the number
of shares outstanding on June 25, 2007 and after giving
effect to an increase in the number of Purchased Shares that may
result from the adjustment provisions of the Investment
Agreement and which may further increase the number of Purchased
Shares. If the Private Placement is not consummated, we will not
adopt the 2007 plan as proposed.
What will
happen if Proposal 6 is not approved?
If Proposal 6 is not approved at the annual meeting, the
2007 Plan will not go into effect unless approved by our
shareholders at a subsequent meeting. If Proposals 2, 3, 4
and 5 are approved, following the closing of the Private
Placement, MatlinPatterson will beneficially own a majority of
the then outstanding shares of our common stock. As a result, if
Proposal 6 is not approved at the annual meeting, there is
a likelihood that a proposal to adopt the 2007 Plan will be
approved by a majority vote of the shareholders at a meeting
subsequent to the closing of the Private Placement. If we are
required to hold a special meeting of the shareholders following
the closing of the Private Placement in order to reconsider the
approval of the 2007 Plan, we will incur additional expenses.
Who can
vote at the annual meeting?
Only shareholders of record at the close of business on
August 10, 2007 will be entitled to vote at the annual
meeting. At the close of business on this record date, there
were 16,000,352 shares of common stock outstanding and
entitled to vote.
Shareholder
of Record: Shares Registered in Your Name
If at the close of business on August 10, 2007 your shares
were registered directly in your name with our transfer agent,
American Stock Transfer & Trust Company, then you
are a shareholder of record. As a shareholder of record, you may
vote in person at the meeting or vote by proxy. Whether or not
you plan to attend the meeting, we urge you to complete and
return the enclosed proxy card to ensure your vote is counted.
Beneficial
Owner: Shares Registered in the Name of a Broker or
Bank
If at the close of business on August 10, 2007 your shares
were held in an account at a brokerage firm, bank, dealer, or
other similar organization, then you are the beneficial owner of
shares held in street name, and these proxy materials are being
forwarded to you by that organization. The organization holding
your account is considered the shareholder of record for
purposes of voting your shares at the annual meeting. As a
beneficial owner, you have the right to direct your broker or
other agent on how to vote the shares in your account. You are
also invited to attend the annual meeting. However, since you
are not the shareholder of record, you will not be able to vote
your shares in person at the meeting unless you request and
obtain a valid proxy from your broker or other agent.
How do I
vote?
For each of the matters to be voted on, you may vote
For or Against or abstain from voting.
The procedures for voting are fairly simple:
Shareholder
of Record: Shares Registered in Your Name
If you are a shareholder of record, you may vote in person at
the annual meeting or vote by proxy. Whether or not you plan to
attend the meeting, we urge you to vote by proxy to ensure your
vote is counted. You may still attend the meeting and vote in
person if you have already voted by proxy.
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To vote by proxy, most shareholders have a choice of voting over
the Internet, using a toll-free telephone number or completing
the proxy card in the form enclosed and mailing it in the
envelope provided. Please refer to your proxy card or the
information forwarded by your bank, broker or other nominee to
see which options are available to you.
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To vote in person, come to the annual meeting, and we will give
you a ballot when you arrive.
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Beneficial
Owner: Shares Registered in the Name of Broker or
Bank
If you are a beneficial owner of shares registered in the name
of your broker, bank or other agent, you should have received a
proxy card and voting instructions with these proxy materials
from that organization rather than from us. Simply complete and
mail the proxy card to ensure that your vote is counted.
To vote in person at the annual meeting, you must obtain a valid
proxy from your broker, bank or other agent. Follow the
instructions from your broker or bank included with these proxy
materials or contact your broker or bank to request a proxy form.
IF YOU HAVE ANY QUESTIONS OR NEED ASSISTANCE WITH VOTING YOUR
SHARES, PLEASE CALL MACKENZIE PARTNERS, INC., THE FIRM ASSISTING
US IN THIS SOLICITATION,
TOLL-FREE AT (800) 322-2885.
How many
votes do I have?
On each matter to be voted upon, you have one vote for each
share of common stock you own as of August 10, 2007.
What if I
return a proxy card but do not make specific choices?
If you return a signed and dated proxy card without marking any
voting selections, your shares will be voted
(1) For the election of the three
(3) persons named as nominees under Election of
Directors; (2) For the proposal to
approve the Private Placement; (3) For
the proposal to amend the Companys Certificate of
Incorporation to increase the authorized share capital of the
Company from 50,000,000 shares of common stock to
100,000,000 shares of common stock with the same par value
of $0.01 per share, (4) For the proposal
to amend the Companys Certificate of Incorporation to
increase the authorized share capital of the Company from
500,000 shares of preferred stock to 1,500,000 shares
of preferred stock with the same par value of
$1.00 per share; (5) For the
proposal to amend the Companys Certificate of
Incorporation to limit the liability of the directors of the
Company to the extent permitted under Section 402(b) of the
NYBCL; (6) For the proposal to adopt the
2007 Plan; (7) For the ratification of
the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending
December 31, 2007; and (8) For the
proposal for adjournment or postponement of the annual meeting
in order to solicit additional proxies in the event there are
insufficient votes at the time of the annual meeting to adopt
Proposals 2, 3, 4, 5 and 6.
What does
it mean if I receive more than one proxy card?
If you receive more than one proxy card, your shares are
registered in more than one name or are registered in different
accounts. Please complete, sign and return each proxy card to
ensure that all of your shares are voted.
Can I
change my vote after submitting my proxy?
Yes. You can revoke your proxy at any time before the final vote
at the meeting. You may revoke your proxy in any one of three
ways:
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You may submit another properly completed proxy card with a
later date.
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You may send a written notice that you are revoking your proxy
to First Albany Companies Inc.s Secretary at 677 Broadway,
Albany, New York
12207-2990.
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You may attend the annual meeting and vote in person. Simply
attending the meeting will not, by itself, revoke your proxy.
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How are
votes counted?
Votes will be counted by the inspector of election appointed for
the meeting, who will separately count For
and Against votes, abstentions and broker
non-votes. Abstentions will be counted towards a quorum and the
vote total for each Proposal and will have the same effect as
Against votes. Broker non-votes will be
counted towards a quorum and depending on the Proposal either
will have the same effect as an Against vote
on the Proposal or will have no effect. Please see the more
detailed description of the effect of broker non-votes on
specific Proposals in the answer to How many votes are
needed to approve each proposal? below.
If your shares are held by your broker as your nominee (that is,
in street name), you will need to obtain a proxy
card from the institution that holds your shares and follow the
instructions included on that proxy card regarding how to
instruct your broker to vote your shares. If you do not give
instructions to your broker, your broker can vote your shares
with respect to discretionary items but not with
respect to non-discretionary items. Discretionary
items are proposals considered routine under the rules of the
NASDAQ Stock Market and on which your broker may vote shares
held in street name in the absence of your voting instructions.
On non-discretionary items for which you do not give your broker
instructions, the shares will be treated as broker non-votes.
The Investment Proposals will all be considered
non-discretionary items.
How many
votes are needed to approve each proposal?
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For the election of directors, the three nominees receiving the
most For votes from the shares present and
entitled to vote at the annual meeting, either in person or by
proxy, will be elected. Abstentions will not be treated as votes
cast at the annual meeting for such purpose.
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To be approved, Proposal 2 must receive
For votes constituting a majority of the
votes cast at the annual meeting with respect to shares entitled
to vote thereon. If you abstain from voting, it will have the
same effect as an Against vote. Broker
non-votes will not be treated as votes cast at the annual
meeting for such purpose.
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To be approved, Proposal 3 must receive
For votes from the holders of a majority of
the shares outstanding as of the record date. If you abstain
from voting, it will have the same effect as an
Against vote. Broker non-votes will also have
the same effect as an Against vote.
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To be approved, Proposal 4 must receive
For votes from the holders of a majority of
the shares outstanding as of the record date. If you abstain
from voting, it will have the same effect as an
Against vote. Broker non-votes will also have
the same effect as an Against vote.
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To be approved, Proposal 5 must receive
For votes from the holders of a majority of
the shares outstanding as of the record date. If you abstain
from voting, it will have the same effect as an
Against vote. Broker non-votes will also have
the same effect as an Against vote.
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To be approved, Proposal 6 must receive
For votes constituting a majority of the
votes cast at the annual meeting with respect to shares entitled
to vote thereon. If you abstain from voting, it will have the
same effect as an Against vote. Broker
non-votes will not be treated as votes cast at the annual
meeting for such purpose.
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To be approved, Proposal 7 must receive
For votes constituting a majority of the
votes cast at the annual meeting with respect to shares entitled
to vote thereon. If you abstain from voting, it will have the
same effect as an Against vote. Broker
non-votes will not be treated as votes cast at the annual
meeting for such purpose.
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To be approved, Proposal 8, should it be presented for a
vote at the annual meeting, must receive For
votes constituting a majority of the votes cast with respect to
shares entitled to vote thereon, whether or not a quorum is
present. Abstentions and broker non-votes will not be treated as
votes cast at the annual meeting for such purpose.
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What is
the quorum requirement?
A quorum of shareholders is necessary to hold a valid meeting. A
quorum will be present if at least a majority of the shares
outstanding and entitled to vote as of the record date are
represented by shareholders present at the meeting or by proxy.
On August 10, 2007, the record date, there were
16,000,352 shares outstanding and entitled to vote. As a
result 8,000,177 of these shares must be represented by
shareholders present at the meeting or by proxy to have a quorum.
Your shares will be counted towards the quorum if you submit a
valid proxy vote or vote at the meeting. Abstentions and broker
non-votes will also be counted towards the quorum requirement.
If there is no quorum, a majority of the votes present at the
meeting may adjourn the meeting to another date.
How can I
find out the results of the voting at the annual
meeting?
Preliminary voting results will be announced at the annual
meeting and announced promptly following the annual meeting in a
press release and current report on
Form 8-K.
Final voting results will be published in our quarterly report
on
Form 10-Q
for the third quarter of 2007 that we are required to file with
the Securities and Exchange Commission (the SEC) by
November 9, 2007.
Who is
paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In
addition to these mailed proxy materials, our directors,
officers and other employees may also solicit proxies in person,
by telephone or by other means of communication. Directors,
officers and other employees will not be paid any additional
compensation for soliciting proxies. We may also reimburse
brokerage firms, banks and other agents for the cost of
forwarding proxy materials to beneficial owners. The
solicitation of proxies will also be supplemented through the
services of MacKenzie Partners, Inc., a proxy solicitation firm.
MacKenzie Partners, Inc. will receive a customary fee which we
estimate to be approximately $15,000, plus certain other fees
for related services and reasonable out-of-pocket expenses.
IF YOU HAVE ANY QUESTIONS OR NEED ASSISTANCE WITH VOTING YOUR
SHARES, PLEASE CALL MACKENZIE PARTNERS, INC. TOLL-FREE AT
(800) 322-2885.
When are
shareholder proposals due for next years annual
meeting?
The deadline for submitting a shareholder proposal for inclusion
in our proxy statement and form of proxy for the 2008 annual
meeting of shareholders is no earlier than 90 days before
the 2008 annual meeting, and no later than the close of business
on the later of either (i) the seventieth (70) day
prior to the 2008 annual meeting, or (ii) the tenth day
following the day the 2008 annual meeting date was first
publicly announced. Shareholders are advised to review our
Bylaws, which contain additional requirements with respect to
advance notice of shareholder proposals and director
nominations. Our current Bylaws are available at the SECs
website, www.sec.gov, or upon written request to Investor
Relations, First Albany Companies Inc., 677 Broadway, Albany,
New York
12207-2990.
The proposed Amendments to our Certificate of Incorporation
referred to in Proposal 3, Proposal 4 and
Proposal 5 are appended to this proxy statement as
Appendix C and will also be available at
www.sec.gov or upon written request to our Investor
Relations department following adoption.
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SUMMARY
This summary highlights information contained elsewhere in
this document and may not contain all the information that is
important to you. First Albany Companies Inc. urges you to read
carefully the remainder of this document, including the attached
appendices, and the other documents to which we have referred
you to because this section does not provide all the information
that might be important to you with respect to the Private
Placement and the other matters being considered at the annual
meeting of shareholders. We have included page references to
direct you to a more complete description of the topics
presented in this summary. Unless the context otherwise
requires, references to we, our and
us in this document refer to First Albany Companies
Inc. and its subsidiaries.
The
Companies
First Albany Companies Inc.
677 Broadway
Albany, New York
12207-2990
(518) 447-8673
First Albany Companies Inc. is an independent investment bank
that serves the qualified market, state and local governments
and the growing corporate middle market by providing clients
with strategic, research-based investment opportunities, as well
as advisory and financing services. First Albany offers a
diverse range of products through its Equities division and its
Municipal Capital Markets division (which is under contract to
be sold), as well as Descap Securities Inc., its mortgage-backed
security/asset-backed security trading subsidiary, and FA
Technology Ventures Inc., its venture capital division. First
Albany maintains offices in major business and commercial
markets.
First Albany, a New York corporation, is traded on the NASDAQ
Global Market, which we refer to as NASDAQ, under the symbol
FACT.
MatlinPatterson FA Acquisition LLC
c/o MatlinPatterson
Global Advisers LLC
520 Madison Avenue, 35th Floor
New York, New York 10022
(212) 651-9500
MatlinPatterson FA Acquisition LLC is a Delaware limited
liability company formed by MatlinPatterson Global Opportunities
Partners II L.P., an investment fund, and its parallel
offshore vehicle (collectively, MatlinPatterson GOP
II), for the purpose of entering into the Investment
Agreement and acquiring the Purchased Shares. MatlinPatterson
GOP II is managed by MatlinPatterson Global Advisers LLC, a
global investment firm that currently manages, in addition to
MatlinPatterson GOP II, MatlinPatterson Global Opportunities
Partners L.P. (and its parallel offshore vehicle) and
MatlinPatterson Global Opportunities Partner III L.P. (and
its parallel offshore vehicle). These partnerships have
aggregate assets and commitments of approximately
$9 billion.
The
Annual Meeting
The
Annual Meeting (See page 21)
The First Albany annual meeting will be held at the offices of
Sidley Austin LLP, 787 Seventh Avenue, 23rd Floor, New
York, New York, 10019, at 10:00 a.m. (EDT), on
September 21, 2007. At the First Albany annual meeting,
First Albany shareholders will be asked:
(1) To elect three (3) directors whose terms will
expire at the 2010 annual meeting of shareholders;
(2) To consider and act upon a proposal to approve the
Private Placement;
(3) To consider and act upon a proposal to amend the
Companys Certificate of Incorporation to increase the
authorized share capital of the Company from
50,000,000 shares of common stock to
100,000,000 shares of common stock with the same par value
of $0.01 per share;
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(4) To consider and act upon a proposal to amend the
Companys Certificate of Incorporation to increase the
authorized share capital of the Company from 500,000 shares
of preferred stock to 1,500,000 shares of preferred stock
with the same par value of $1.00 per share;
(5) To consider and act upon a proposal to amend the
Companys Certificate of Incorporation to limit the
liability of the directors of the Company to the extent
permitted under Section 402(b) of the NYBCL;
(6) To consider and act upon a proposal to approve the
adoption of the 2007 Plan;
(7) To consider and act upon a proposal to ratify the
appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending
December 31, 2007;
(8) In the event there are insufficient votes at the time
of the annual meeting to adopt Proposals 2, 3, 4, 5 and 6,
to consider and act upon a proposal to adjourn or postpone the
annual meeting in order to solicit additional proxies.
(9) To consider and act upon such other business as may
properly come before the meeting.
You may vote at the First Albany annual meeting if you owned
shares of First Albany common stock at the close of business on
August 10, 2007. On that date, there were
16,000,352 shares of First Albany common stock outstanding,
approximately 21% of which were owned and entitled to be voted
by First Albany directors and executive officers and their
affiliates. We currently expect that First Albanys
directors and executive officers will vote their shares in favor
of the Private Placement, and Messrs. George McNamee and
Alan Goldberg, directors of the Company, and Mr. McNierney,
a director and the President and CEO of the Company, have agreed
with MatlinPatterson to vote the shares of common stock owned by
them in favor of the transaction. These persons collectively own
approximately 19% of the outstanding shares of common stock.
Therefore, shares representing approximately 32% of the
outstanding shares of common stock of the Company as of the
record date, in addition to those shares representing
approximately 19% of the outstanding shares of common stock
which are subject to the Voting Agreements with MatlinPatterson
to vote in favor of the transaction, must be voted in favor of
Proposals 2, 3, 4, 5 and 6 for these proposals to be
approved. Approximately 38% of the shares outstanding which are
not subject to the Voting Agreements (which is approximately 81%
of the outstanding shares of common stock as of the record date)
must be voted in favor of Proposals 2, 3, 4, 5 and 6 for
these proposals to be approved.
You can cast one vote for each share of First Albany common
stock you own. The proposals require different percentages of
votes in order to approve them:
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For the election of directors, the three nominees receiving the
most For votes from the shares present and
entitled to vote at the annual meeting, either in person or by
proxy, will be elected. Abstentions will not be treated as votes
cast at the annual meeting for such purpose.
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To be approved, Proposal 2 must receive
For votes constituting a majority of the
votes cast at the annual meeting with respect to shares entitled
to vote thereon. If you abstain from voting, it will have the
same effect as an Against vote. Broker
non-votes will not be treated as votes cast at the annual
meeting for such purpose.
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To be approved, Proposal 3 must receive
For votes from the holders of a majority of
the shares outstanding as of the record date. If you abstain
from voting, it will have the same effect as an
Against vote. Broker non-votes will also have
the same effect as an Against vote.
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To be approved, Proposal 4 must receive
For votes from the holders of a majority of
the shares outstanding as of the record date. If you abstain
from voting, it will have the same effect as an
Against vote. Broker non-votes will also have
the same effect as an Against vote.
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To be approved, Proposal 5 must receive
For votes from the holders of a majority of
the shares outstanding as of the record date. If you abstain
from voting, it will have the same effect as an
Against vote. Broker non-votes will also have
the same effect as an Against vote.
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To be approved, Proposal 6 must receive
For votes constituting a majority of the
votes cast at the annual meeting with respect to shares entitled
to vote thereon. If you abstain from voting, it will have the
same effect
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as an Against vote. Broker non-votes will not
be treated as votes cast at the annual meeting for such purpose.
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To be approved, Proposal 7 must receive
For votes constituting a majority of the
votes cast at the annual meeting with respect to shares entitled
to vote thereon. If you abstain from voting, it will have the
same effect as an Against vote. Broker
non-votes will not be treated as votes cast at the annual
meeting for such purpose.
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To be approved, Proposal 8, should it be presented for a
vote at the annual meeting, must receive For
votes constituting a majority of the votes cast with respect to
shares entitled to vote thereon, whether or not a quorum is
present. Abstentions and broker non-votes will not be treated as
votes cast at the annual meeting for such purpose.
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Proposal No. 1:
Election of Directors (See page 24)
Three directors will be elected at the annual meeting to serve
for a three-year term expiring at the annual meeting of
shareholders in 2010. The Board has nominated three persons as
directors. The Board recommends that shareholders vote FOR the
election of these nominees.
Proposal No. 2:
Approval of the Private Placement (See page 28)
Background
of the Private Placement (See page 30)
The Company experienced losses in several of our key segments in
2005 and 2006, including equities sales and trading, equity
investment banking and fixed income sales and trading.
Recognizing these losses and the need to maintain liquidity
requirements, in the spring of 2006 the Board retained
Freeman & Co. Securities LLC (Freeman) as
its financial advisor to establish a comprehensive process to
entertain both a strategic sale of, or a strategic investment
in, the Company.
Throughout 2006 and early 2007, the Company had conversations
with numerous potential investors but ultimately received no
offers. In the first quarter of 2007, MatlinPatterson expressed
interest in investing in the Company. The Board formed a special
committee of the Board (the Special Committee) to
assist in evaluating proposals from potential investors and to
make recommendations to the Board regarding any issues requiring
Board consideration with respect to any proposals received from
such investors. Bingham McCutchen LLP was retained as legal
counsel for the Special Committee.
The Board and the Special Committee engaged in discussions and
consulted with their financial advisors and legal counsel
regarding the potential MatlinPatterson transaction. The Special
Committee ultimately reported to the Board that it was satisfied
with the process and felt that all reasonably possible scenarios
and interested parties had been considered and that the efforts
made were sufficient to indicate that the MatlinPatterson
proposal was the best available for the Company and its
shareholders.
The Special Committee also requested that Freeman deliver a
fairness opinion regarding the consideration to be paid to the
Company in connection with the Private Placement.
On May 14, 2007, the Company entered into the Investment
Agreement with MatlinPatterson described below and attached
hereto as Appendix A providing for the issuance and
sale of Purchased Shares for gross proceeds of $50 million.
Please see the section Investment Agreement below
for information on the Investment Agreement.
Reasons
for the Private Placement (See page 35)
We have experienced recurring losses and, as of June 30,
2007, had cash of approximately $3.5 million and working
capital of approximately $17 million. Continuing losses
will adversely impact the Companys liquidity and net
capital. We need additional capital to pursue our strategic
objectives. If the Investment Proposals are approved by our
shareholders, we would be authorized to issue the Purchased
Shares, and upon satisfaction of the other conditions to closing
the Private Placement, we would receive $50 million of
gross proceeds from the sale of the
12
Purchased Shares, less transaction fees and expenses. It is
currently expected that approximately $20 million of the
proceeds from the Private Placement will be invested in the
Companys subsidiary Descap Securities Inc. to enable it to
position more products and take advantage of opportunities that
we believe to exist in the mortgage and asset-backed securities
markets and to issue primary debt financing. In addition, we
currently expect that up to $10 million will be committed
to a fund managed by the Companys subsidiary, FA
Technology Ventures Corporation, which invests in the emerging
growth sectors of information and energy technology. In
addition, pursuant to the Term Loan and Capital Lease Waiver
described in our quarterly report on
Form 10-Q
for the period ended June 30, 2006, we have agreed that
upon the closing of the Private Placement and the DEPFA
Transaction we will repay all outstanding loan and lease
obligations to a certain lender. If the DEPFA Transaction closes
prior to the Private Placement, we have agreed to prepay the
aggregate amounts of loan and lease obligations equal to 75% of
the net proceeds received by the Company and then pay the
remaining amounts upon closing of the Private Placement. We
believe the remaining proceeds from the Private Placement will
also provide us with additional resources to grow our
businesses, to seek to acquire other securities or advisory
businesses, to focus on our core investment products and service
strengths, to provide incentives to employees and to better meet
the needs of our clients, and we may also repay some or all of
our indebtedness. Immediately following the closing of the
Private Placement, we expect the Company to have over
$50 million in cash and working capital in excess of
$58 million and we believe the proceeds from the Private
Placement will allow the Company to increase existing capital
levels with each of its broker dealers. After considering
numerous potential financing and strategic alternatives, the
Board determined that the Private Placement was the best
available alternative and would provide the greatest potential
value for our shareholders, as well as provide the necessary
capital to pursue our long-term strategic goals. The
determination was the result of careful consideration by the
Board of a number of factors, including (i) that the
Private Placement will strengthen our financial condition and
reduce our financial risk, (ii) that the Private Placement
will strengthen our investor base with the addition of a new
experienced investor who will have a significant stake in our
long-term success and will be motivated to provide the support
and assistance to protect and enhance its investment and
(iii) that we believe we will strengthen our Board with the
addition of new directors who have significant experience in
advising comparable companies. In its review of the Private
Placement, the Board also considered a number of potentially
negative factors, including (i) that the Private Placement
will have a highly dilutive effect on our current shareholders
and option holders, (ii) that MatlinPatterson is currently
expected to control between 70% and 75% of the voting power of
our capital stock immediately upon the closing of the Private
Placement (between 60% and 65% on a fully diluted basis), after
giving effect to an increase in the number of Purchased Shares
that may result from the adjustment provisions of the Investment
Agreement and which may further increase the number of Purchased
Shares and (iii) the Private Placement will result in
restrictions on our ability to use our net operating loss
carryforwards to offset future taxable income. The Board
recognized that there can be no assurance that we would be able
to achieve all or significantly all of each anticipated benefit
or advantage or that it had identified and accurately assessed
each risk and negative factor. However the Board concluded that
the potential benefits and advantages of the Private Placement
significantly outweigh the risks and negative factors that it
had identified.
Recommendations
of the Board of Directors (See page 59)
After careful consideration and on the unanimous recommendation
of the Special Committee, the Board unanimously approved the
Investment Agreement on May 14, 2007. For the factors
considered by the Board in reaching its decision to approve the
Investment Agreement, see the section entitled
Proposal 2, Approval of the Private
Placement Reasons for the Private Placement
beginning on page 28. The First Albany Board of
Directors unanimously recommends that the First Albany
shareholders vote For the proposal to approve
the issuance of First Albany common stock in the Private
Placement.
Opinion
of our Independent Financial Advisor (See
page 37)
On May 14, 2007, First Albanys financial advisor,
Freeman, delivered to the Board its opinion that, as of the date
of the opinion and based upon the assumptions made, matters
considered and limits of review set forth in its written
opinion, the consideration to be paid to the Company was fair
from a financial point of view. A copy of Freemans written
opinion is attached to this proxy statement as
Appendix B.
13
First Albany encourages you to read carefully both the section
entitled Proposal 2, Approval of the Private
Placement Opinion of Our Financial Advisor
beginning on page 37 and Freemans written opinion in
its entirety for a description of the assumptions made, matters
considered and limits on the scope of review undertaken by
Freeman. Freemans opinion was intended for the use and
benefit of the Board of Directors, does not address the merits
of the underlying decision by First Albany to enter into the
Investment Agreement or any of the transactions contemplated
thereby, including the Private Placement, and does not
constitute a recommendation as to how any holder of common stock
should vote on, or take any action with respect to, the Private
Placement or any related matter.
Financial
Projections (See page 41)
The Companys senior management provided financial
forecasts to MatlinPatterson in connection with their
consideration of a possible transaction with the Company. These
projections were also provided to our Board and to Freeman. We
have included a subset of these projections in this proxy
statement to give our shareholders access to certain nonpublic
information deemed material by our Board for purposes of
considering and evaluating the Private Placement. The inclusion
of these projections should not be regarded as an indication
that management, our Board, MatlinPatterson, Freeman, or any
other recipient of this information considered, or now
considers, these projections to be a reliable prediction of
future results, and they should not be relied on as such. In
addition, as we have only included a subset of the projections
in this proxy statement, you are cautioned not to rely on this
information as complete in making a decision whether to vote in
favor of the Private Placement.
The projections reflect numerous estimates and assumptions with
respect to industry performance, general business, economic,
regulatory, market and financial conditions and other matters,
including assumed effective interest rates and effective tax
rates consistent with the Companys historical levels, all
of which are difficult to predict and many of which are beyond
the Companys control. The projections are also subject to
significant uncertainties in connection with changes to the
Companys business and its financial condition and results
of operation. In addition, the projections reflect projected
information without regard to the Investment Agreement with
MatlinPatterson, which may cause actual results to materially
differ as well. As a result, there can be no assurance that the
projected results will be realized or that actual results will
not be significantly higher or lower than those contained in the
projections; it is expected that there will be differences
between actual and projected results. Since the projections
cover multiple years, such information by its nature becomes
less reliable with each successive year.
Terms of
the Private Placement (See page 44)
The following is a summary of the terms of the Private Placement
and the provisions of the Investment Agreement, the Registration
Rights Agreement, the Voting Agreements and the Amendment of the
Rights Agreement referred to below. The sale of the Purchased
Shares has not been registered under the Securities Act of 1933,
as amended (the Securities Act). The Purchased
Shares will be sold to MatlinPatterson FA Acquisition LLC, an
accredited investor, and possibly additional co-investors who
are accredited investors, in reliance upon exemptions from
registration under Section 4(2) of the Securities Act and
SEC Rule 506 of Regulation D. None of the Purchased
Shares may be offered or sold in the United States absent
registration under or exemption from the Securities Act and any
applicable state security laws.
THIS SUMMARY OF THE TERMS OF THE PRIVATE PLACEMENT IS
INTENDED TO PROVIDE YOU WITH BASIC INFORMATION CONCERNING THE
TRANSACTION. IT IS NOT A SUBSTITUTE FOR REVIEWING THE INVESTMENT
AGREEMENT, THE FORM OF REGISTRATION RIGHTS AGREEMENT, THE
VOTING AGREEMENTS AND THE AMENDMENT TO RIGHTS AGREEMENT APPENDED
TO THIS PROXY STATEMENT AS APPENDIX A. YOU SHOULD READ THIS
SUMMARY IN CONJUNCTION WITH THE AGREEMENTS APPENDED HERETO AS
APPENDIX A.
Investment
Agreement (See page 44)
On May 14, 2007, the Company entered into the Investment
Agreement with MatlinPatterson FA Acquisition LLC providing for
the purchase by MatlinPatterson FA Acquisition LLC and certain
co-investors which may be
14
designated by it (collectively referred to herein as
MatlinPatterson), upon the terms and subject to the
conditions of the Investment Agreement, of 33,333,333 newly
issued shares of the Companys common stock, par value
$0.01 per share, for an aggregate cash purchase price of
$50 million. The number of shares issuable to
MatlinPatterson in consideration of the $50 million
purchase price (referred to herein as the Purchased
Shares) is subject to an upward adjustment if the Company
incurs certain incremental employment-related obligations as a
result of the DEPFA Transaction (as defined below) not having
closed prior to closing the Private Placement and if the
Companys net tangible book value per share at closing is
less than $1.60. The proceeds to the Company from the sale of
shares to MatlinPatterson would be invested in the
Companys ongoing businesses, consistent with a strategic
plan to be developed by the Company and MatlinPatterson. The
development of the strategic plan is expected to be completed
following the closing of the Private Placement. It is currently
expected that approximately $20 million of the proceeds
from the Private Placement will be invested in the
Companys subsidiary Descap Securities Inc. to enable it to
position more products and take advantage of opportunities that
we believe to exist in the mortgage and asset-backed securities
markets and to issue primary debt financing. In addition, we
currently expect that up to $10 million will be committed
to a fund managed by the Companys subsidiary, FA
Technology Ventures Corporation, which invests in the emerging
growth sectors of information and energy technology. We believe
the remaining proceeds from the Private Placement will also
provide us with additional resources to grow our businesses, to
seek to acquire other securities or advisory businesses, to
focus on our core investment products and service strengths, to
provide incentives to employees and to better meet the needs of
our clients, and we may also repay some or all of our
indebtedness. Immediately following the closing of the Private
Placement, we expect the Company to have over $50 million
in cash and working capital in excess of $58 million and we
believe the proceeds of the Private Placement will allow the
Company to increase existing capital levels with each of its
broker dealers.
The Company previously announced its agreement to sell the
Municipal Capital Markets Group of First Albany Capital Inc.,
the Companys wholly-owned subsidiary, to DEPFA BANK plc
(sometimes referred to herein as the DEPFA
Transaction). In the event that the DEPFA Transaction
closes after the closing of the Private Placement, certain
employees of the Company, who will remain employed by the
Company at the time of the closing of the Private Placement and
who would have otherwise have become employed by DEPFA had the
DEPFA Transaction closed prior to the Private Placement, would
be entitled to receive certain cash payments and accelerated
vesting of certain equity awards triggered by MatlinPatterson
gaining control of the Company that they would not have been
entitled to if the DEPFA Transaction had closed first. In such
an event, the Investment Agreement provides that the number of
Purchased Shares will be increased to account for the cash
bonuses or other amounts paid or payable by the Company to any
employee of the Municipal Capital Markets Group that would not
have been so paid had the DEPFA Transaction closed prior to the
closing of the Private Placement, as well as the accelerated
vesting of the restricted stock awards and stock options held by
such employees that would not have occurred if the DEPFA
Transaction had closed prior to the closing of the Private
Placement. In the event that our employees entitled to receive
such payments and to benefit from the accelerated vesting of
such awards and options do not waive such rights, we expect the
number of Purchased Shares to be increased at the closing,
without MatlinPatterson being required to contribute more than
the $50 million already contemplated by the Investment
Agreement. To the extent that the affected employees are willing
to waive their rights to such payments and accelerated vesting,
the number of additional Purchased Shares will be reduced
accordingly.
The Investment Agreement also provides that the number of
Purchased Shares will be further adjusted upwards, in addition
to the adjustment described above, if our net tangible book
value per share is less than $1.60 as of the closing date. In
such case, the number of Purchased Shares will be increased by a
factor reflecting the percentage shortfall represented by the
net tangible book value per share as of the closing date
compared to a target of $1.69 per share. If the DEPFA
Transaction closes prior to the closing of the Private
Placement, there will first be a pro forma adjustment to
eliminate the effects of the closing of the DEPFA Transaction on
net tangible book value per share. If the DEPFA Transaction has
not closed prior to the closing of the Private Placement, there
will instead be a pro forma elimination of the incremental cash
payments and accelerated restricted stock awards and stock
options referred to above.
Upon the closing of the Private Placement, and after giving
effect to the contemplated issuance to certain employees of
restricted stock units as described herein, MatlinPatterson
currently is expected to own between 70%
15
and 75% of the outstanding common stock (between 60% and 65% on
a fully diluted basis), based on the number of shares
outstanding on June 25, 2007, and after giving effect to an
increase in the number of Purchased Shares that may result from
the adjustment provisions of the Investment Agreement and which
may further increase the number of Purchased Shares.
In connection with entering into the Investment Agreement, the
Company has terminated the Companys previously announced
plans to reprice outstanding employee stock options and to
replace outstanding employee restricted stock awards with stock
appreciation rights.
The Investment Agreement contains other covenants of the
Company, including an agreement of the Company to operate its
business in the ordinary course until the purchase is completed.
The Company has also agreed not to solicit or initiate
discussions with third parties regarding other competing
proposals and to certain restrictions on its ability to respond
to any unsolicited competing proposal. The Investment Agreement
also includes customary representations and warranties of the
Company and MatlinPatterson, indemnification provisions for
MatlinPatterson and termination provisions for both the Company
and MatlinPatterson.
The summary above of the Investment Agreement does not purport
to be complete and is qualified in its entirety by the more
detailed description contained herein as well as the full text
of such agreement, a copy of which is attached in
Appendix A hereto.
The Investment Agreement contains representations and warranties
of the Company and MatlinPatterson made to each other. The
statements embodied in those representations and warranties are
qualified by information in confidential disclosure schedules
that the Company and MatlinPatterson have exchanged in
connection with signing the Investment Agreement. Please note
that certain representations and warranties were made as of a
specified date, may be subject to a contractual standard of
materiality different from those generally applicable to
shareholders, or may have been used for the purpose of
allocating risk between the parties rather than establishing
matters as fact.
Registration
Rights Agreement (See page 50)
We agreed to enter into a Registration Rights Agreement with
MatlinPatterson (the Registration Rights Agreement),
pursuant to which we would be required upon the demand of
MatlinPatterson on up to three occasions to file with the SEC a
registration statement for the resale of Purchased Shares. The
Registration Rights Agreement would obligate us to use our best
efforts to have the registration statement declared effective as
soon as practicable after it is filed. The Registration Rights
Agreement also provides MatlinPatterson with piggyback
registration rights exercisable if we file certain registration
statements on our own initiative or upon the request of another
shareholder. We would bear all of the costs of any demand or
piggyback registration other than underwriting discounts and
commissions and certain other expenses.
The summary above of the Registration Rights Agreement does not
purport to be complete and is qualified in its entirety by the
more detailed description contained herein as well as the full
text of such agreement, a copy of which is attached in
Appendix A hereto.
Voting
Agreements (See page 50)
MatlinPatterson has entered into certain voting agreements with
Messrs. Alan Goldberg, George McNamee and Peter McNierney,
individually (the Voting Agreements), pursuant to
which each such shareholder has agreed to vote the shares of
common stock beneficially owned by him in favor of approval of
each of the Investment Proposals. Messrs. Goldberg, McNamee
and McNierney have agreed, among other things (i) to vote
their shares of common stock in favor of the Private Placement
and the other Investment Proposals, (ii) not to solicit,
encourage or recommend to other shareholders of the Company that
they vote their shares of common stock in any contrary manner,
that they refrain from voting their shares, that they tender,
exchange or otherwise dispose of their shares of common stock
pursuant to a Competing Transaction (as defined in
the Voting Agreements), or that they attempt to exercise any
statutory appraisal or other similar rights they may have,
(iii) unless otherwise instructed in writing by
MatlinPatterson, to vote their shares against any Competing
Transaction and (iv) not to, and not to permit any of their
employees, attorneys, accountants, investment bankers or other
agents or representatives to, initiate, solicit,
16
negotiate, encourage, or provide confidential information in
order to facilitate any Competing Transaction. These persons
collectively own approximately 19% of the outstanding shares of
common stock. Therefore, shares representing approximately 32%
of the outstanding shares of common stock of the Company as of
the record date, in addition to those shares representing
approximately 19% of the outstanding shares of common stock
which are subject to the Voting Agreements with MatlinPatterson
to vote in favor of the transaction, must be voted in favor of
Proposals 2, 3, 4, 5 and 6 for these proposals to be
approved. Approximately 38% of the shares outstanding which are
not subject to the Voting Agreements (which is approximately 81%
of the outstanding shares of common stock as of the record date)
must be voted in favor of Proposals 2, 3, 4, 5 and 6 for
these proposals to be approved.
The summary above of the Voting Agreements does not purport to
be complete and is qualified in its entirety by the more
detailed description contained herein as well as the full text
of each such agreement, a copy of which is attached in
Appendix A hereto.
Amendment
of the Rights Agreement (See page 51)
On March 30, 1998, we entered into the Rights Agreement
with our transfer agent, American Stock Transfer &
Trust Company, designed to provide for a fair and equal
treatment for all shareholders in the event that an unsolicited
attempt is made to acquire our Company. The effect of the Rights
Agreement is to discourage acquisitions of more than 15% of our
common stock without negotiations with the Board. As required
under the Investment Agreement, we entered into an amendment to
the Rights Agreement (the Amendment to the Rights
Agreement) to provide that entry into the Investment
Agreement and the Private Placement will be exempt from the
Rights Agreement and that MatlinPatterson and certain related
persons would not be deemed to be Acquiring Persons
thereunder.
Notice
and Waiver Letter Agreement (See page 51)
On July 25, 2007, we entered into a Notice and Waiver
Letter Agreement with DEPFA (the DEPFA Waiver).
Pursuant to the DEPFA Waiver, DEPFA agreed to waive the
condition to closing the DEPFA Transaction requiring that we
present a management proposal at the annual meeting to amend our
Certificate of Incorporation to change our corporate name to a
name that does not include the words First Albany or
FA or any derivatives thereof (the Charter
Amendment). Under the terms of the DEPFA Waiver, we agreed
to use commercially reasonable efforts to hold a special meeting
of shareholders to approve the Charter Amendment (the
Special Meeting) prior to or (if necessary)
following the closing of the DEPFA Transaction, including
following the closing of the Private Placement. The DEPFA Waiver
also provides that we and DEPFA will enter into a license
agreement (the License Agreement) to allow us
limited continued use of the name First Albany in
the event the DEPFA Transaction closes before the Charter
Amendment is approved at the Special Meeting. If the Charter
Amendment is not effected within sixty days following the
closing of the DEPFA Transaction, then the Company will pay
DEPFA an annual royalty fee of $50,000 under the terms of the
License Agreement.
We currently intend to hold the Special Meeting following the
closing of the Private Placement and expect that, if the
Investment Proposals are approved by our shareholders and the
Private Placement is completed, MatlinPatterson will be a record
holder of our common stock entitled to vote at the Special
Meeting. As a condition to the DEPFA Waiver, DEPFA entered into
a voting agreement with MatlinPatterson effective as of
June 29, 2007 pursuant to which MatlinPatterson agreed to
vote its shares of common stock at the Special Meeting in favor
of the Charter Amendment. We currently expect that the
shareholder proposal regarding the Charter Amendment (the
Charter Amendment Proposal) to be presented at the
Special Meeting will provide that the name of the Company will
be changed to Broadpoint Securities Group, Inc. MatlinPatterson
has also indicated its intention to vote its shares in favor of
a management proposal we intend to present to our shareholders
at the Special Meeting to amend the Certificate of Incorporation
of the Company to permit our shareholders to act by less than
unanimous written consent (the Consent Proposal and,
together with the Charter Amendment Proposal, the Special
Meeting Proposals). Following the approval of the Consent
Proposal at the Special Meeting, if MatlinPatterson is the
holder of a majority of our outstanding common stock, it would
be able to take unilateral action by written consent without a
shareholder meeting for those actions requiring majority
shareholder approval until such time as its ownership interest
decreases to fifty percent (50%) or less. If the Investment
Proposals are approved by our shareholders and the Private
Placement is completed, and we hold the Special Meeting
following the closing of the Private Placement when
MatlinPatterson is a record holder of our common stock, as we
currently
17
intend, MatlinPatterson will have the power acting alone to
determine the outcome of the Special Meeting Proposals and they
will be approved at the Special Meeting.
No
Appraisal Rights (See page 57)
The shareholders are not entitled to appraisal rights with
respect to the Private Placement, and we will not independently
provide the shareholders with any such rights.
Proposal No. 3:
Amend the Certificate of Incorporation to Increase
the Companys Authorized Common Stock from
50,000,000 shares to 100,000,000 shares (See
page 60)
We do not currently have sufficient authorized shares to
complete the Private Placement described in Proposal 2. To
complete the Private Placement and issue the Purchased Shares,
we need to substantially increase the number of shares of our
common stock authorized for issuance under our Certificate of
Incorporation. It is a condition to the completion of the
Private Placement that our shareholders approve Proposal 3.
Our current Certificate of Incorporation authorizes
50,000,000 shares of common stock for issuance. As of
June 25, 2007, there were approximately
16,040,000 shares of our common stock outstanding and an
additional approximately 5,233,000 shares reserved for
issuance upon exercise of outstanding options and warrants and
reserved for future issuance under our equity compensation
plans. As a result, as of June 25, 2007, there were only
approximately 28,727,883 authorized shares of our common stock
available for issuance. We have proposed increasing the
authorized number of shares of common stock to
100,000,000 shares to permit completion of the Private
Placement, for the Company to reserve 25% of our shares of
common stock outstanding from time to time for issuance under
the 2007 Plan and our existing long-term incentive plans and to
provide additional authorized shares of common stock available
to issue in the future. The additional authorized shares may be
issued for various purposes without further shareholder
approval, except to the extent required by applicable NASDAQ
Marketplace Rules. The purposes may include raising capital,
providing equity incentives to employees, officers, directors or
consultants, establishing strategic relationships with other
companies, expanding our business or product lines through the
acquisition of other businesses or products, and other corporate
purposes.
If our shareholders do not approve the amendment to our
Certificate of Incorporation to increase the authorized number
of shares of common stock, we will not be able to complete the
Private Placement and we will not receive any of the proceeds
from the sale of the Purchased Shares. In such event, we will
also not amend our Certificate of Incorporation as described in
Proposal 4 and we will not adopt the 2007 Plan as described
in Proposal 6, even if one or more of such other Proposals
is approved by the shareholders. However, if Proposal 5 is
approved by the shareholders, our Certificate of Incorporation
will still be amended as provided in that Proposal.
Proposal No. 4:
Amend the Certificate of Incorporation to Increase
the Companys Authorized Preferred Stock from
500,000 shares to 1,500,000 shares (See
page 62)
Under the Investment Agreement, we agreed to seek the
shareholders approval of an amendment to our Certificate
of Incorporation to increase the authorized number of shares of
preferred stock from 500,000 to 1,500,000. The additional shares
of preferred stock also relate to the Rights Agreement we
entered into on March 30, 1998 with our transfer agent,
American Stock Transfer & Trust Company (the
Rights Agreement), designed to provide for fair and
equal treatment for all shareholders in the event that an
unsolicited attempt is made to acquire our Company. The Rights
Agreement gives each holder of common stock the right to
purchase
1/100th share
of preferred stock upon certain triggering events. In connection
with the authorization of 100,000,000 shares of common
stock in accordance with Proposal 3, 1,000,000 shares
of preferred stock will be needed to support these rights. The
additional shares of authorized preferred stock may also be
issued for various other purposes, including raising capital,
providing equity incentives to employees, officers, directors or
consultants, establishing strategic relationships with other
companies, expanding our business or product lines through the
acquisition of other businesses or products, and other corporate
purposes.
Approval of the amendment to our Certificate of Incorporation to
increase the number of authorized shares of our preferred stock
is a condition to the closing of the Private Placement and if
the shareholders do not approve Proposal 4, we will not be
able to complete the Private Placement and we will not receive
any proceeds from the sale of the Purchased Shares, unless
MatlinPatterson waives the condition. In such event, we also
will not amend our Certificate of Incorporation as described in
Proposal 3 and we will not adopt the 2007 Plan as described
in
18
Proposal 6, even if one or more of such other Proposals is
approved by the shareholders. However, if Proposal 5 is
approved by the shareholders, our Certificate of Incorporation
will still be amended as provided in that Proposal.
Proposal No. 5:
Amend the Certificate of Incorporation to
Limit the Liability of the Directors of the Company to the
Extent Permitted
under Section 402(b) of the New York Business Corporation
Law (See page 64)
Under the Investment Agreement, we agreed to seek the
shareholders approval of an amendment to our Certificate
of Incorporation limiting the liability of the directors of the
Company to the extent permitted under Section 402(b) of the
NYBCL. The current policy set forth in the Companys
Certificate of Incorporation does not eliminate or limit
personal liability of the directors for damages for any breach
of duty in their capacity as directors. Section 402(b) of
the NYBCL allows a corporation to eliminate or limit the
personal liability of its directors and specifically provides
that The certificate of incorporation may set forth a
provision eliminating or limiting the personal liability of
directors to a corporation or its shareholders for damages for
any breach of duty in such capacity, provided that no such
provision shall eliminate or limit: (1) the liability of
any director if a judgment or other final adjudication adverse
to him establishes that his acts or omissions were in bad faith
or involved intentional misconduct or a knowing violation of law
or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled or that his acts
violated section 719, or (2) the liability of any
director for any act or omission prior to the adoption of a
provision authorized by this paragraph. The Company
proposes to amend its Certificate of Incorporation so as to
limit the personal liability of the Companys directors to
the extent permitted under Section 402(b).
The Board believes that limiting the directors personal
liability as permitted by the New York statute will enhance the
ability of the Company to attract and retain highly qualified
directors in the future. In addition, the threat of personal
liability may have an adverse effect on the decision-making
process of directors. The proposed amendment may also encourage
directors to make entrepreneurial decisions which they believe
to be in the best interest of the shareholders with less threat
of personal liability for damages for breach of their duty of
care.
Approval of the amendment to our Certificate of Incorporation to
limit the liability of the directors and officers of the Company
is a condition to the closing of the Private Placement and if
the shareholders do not approve Proposal 5, we will not be
able to complete the Private Placement and we will not receive
any proceeds from the sale of the Purchased Shares, unless
MatlinPatterson waives the condition. In such event, we also
will not amend our Certificate of Incorporation as described in
Proposal 3 and Proposal 4 and we will not adopt the
2007 Plan as described in Proposal 6, even if one or more
of such other Proposals is approved by the shareholders. If
Proposal 5 is approved by the shareholders, we intend to
amend our Certificate of Incorporation as contemplated by
Proposal 5, even if none of the other Proposals are
approved.
Proposal No. 6:
Adopt the First Albany Companies Inc. 2007 Incentive
Compensation Plan (See page 66)
The 2007 Plan is designed to advance the interests of the
Company by providing a means through which incentive awards can
be granted to officers, other employees and persons who provide
services to the Company and its subsidiaries. By making grants
of awards under this plan, the Company can attract, retain and
reward such persons and, by linking compensation measures to
performance, the Company can provide incentives for the creation
of shareholder value. In addition, the interests of the
Companys shareholders and the award recipients can be more
closely aligned by giving the recipients an interest in the
long-term success of the Company. The 2007 Plan provides that
the number of shares of common stock available for outstanding
awards under that plan and our existing long-term incentive
plans will be equal to 25% of the total number of shares of
common stock outstanding from time to time.
Furthermore, the obligation of MatlinPatterson to complete the
Private Placement is conditioned on at least 22 of 27 designated
key employees of the Company becoming bound by certain
non-competition and non-solicitation covenants conditioned on
the closing of the Private Placement and remaining employed by
the Company at the closing of the Private Placement. Twenty-four
of such 27 designated key employees have entered into such
19
agreements to become effective as of the closing. The terms on
which such designated key employees entered into such
non-competition and non-solicitation covenants require that the
Company grant to such employees certain awards of restricted
stock units under the 2007 Plan if the Private Placement closes.
The Company also expects to enter into an employment agreement
with Mr. Fensterstock that will become effective at the
closing of the Private Placement. Pending the closing of the
Private Placement, Mr. Fensterstock has been engaged by the
Company as a consultant. The Company has also entered into an
employment agreement with Mr. McNierney and an amendment to
the existing employment agreement of Mr. Coad that will
each become effective as of the closing of the Private
Placement. If the Private Placement is completed, these
employment agreements (or amendment in the case of
Mr. Coad) will also obligate the Company to award certain
restricted stock units to such executives under the 2007 Plan.
Accordingly, it is contemplated that, as of the closing of the
Private Placement, awards of restricted stock units in respect
of up to 6.75 million shares of common stock will be made
or committed to be made under the 2007 Plan, representing
between 9.2% and 10.7% of the shares of common stock currently
expected to be outstanding immediately following the closing on
a fully diluted basis, based on the number of shares of common
stock outstanding on June 25, 2007 and after giving effect
to an increase in the number of Purchased Shares that may result
from the adjustment provisions of the Investment Agreement and
which may further increase the number of Purchased Shares. If
the Private Placement is not consummated, we will not adopt the
2007 plan as proposed.
If Proposal 6 is not approved at the annual meeting, the
2007 Plan will not go into effect unless approved by our
shareholders at a subsequent meeting. If Proposals 2, 3, 4
and 5 are approved, following the closing of the Private
Placement, MatlinPatterson will beneficially own a majority of
the then outstanding shares of our common stock. As a result, if
Proposal 6 is not approved at the annual meeting, there is
a likelihood that a proposal to adopt the 2007 Plan will be
approved by a majority vote of the shareholders at a meeting
subsequent to the closing of the Private Placement. If we are
required to hold a special meeting of the shareholders following
the closing of the Private Placement in order to reconsider the
approval of the 2007 Plan, we will incur additional expenses.
Proposal No. 7:
Ratification of Selection of Independent Accountants (See
page 71)
The Audit Committee of the Board of Directors has selected
PricewaterhouseCoopers LLP as the Companys independent
accountants for fiscal year ending December 31, 2007. We
are submitting the selection of independent accountants for
shareholder ratification at the annual meeting.
Proposal No. 8:
Adjournment or Postponement of Annual Meeting (See
page 73)
If there are insufficient votes at the time of the annual
meeting to adopt Proposal 2, Proposal 3,
Proposal 4, Proposal 5 and Proposal 6, we may
propose that the annual meeting be adjourned or postponed for a
period of time for the purpose of soliciting additional proxies
to adopt these proposals. We do not intend to propose to adjourn
or postpone the annual meeting if there are sufficient votes to
adopt Proposals 2, 3, 4, 5 and 6.
20
ANNUAL
MEETING OF SHAREHOLDERS
September 21, 2007
This proxy statement is being furnished to the shareholders of
First Albany in connection with the solicitation by the Board of
Directors of proxies for use at the annual meeting to be held at
the offices of Sidley Austin LLP, 787 Seventh Avenue,
23rd Floor, New York, New York on September 21, 2007
at 10:00 a.m. (EDT), and any postponements or adjournments
thereof. The mailing address of the principal office of the
Company is 677 Broadway, Albany, New York
12207-2990
and its telephone number is
(518) 447-8500.
At the annual meeting, the shareholders of the Company will be
asked (1) to elect the three (3) persons named as
nominees under Election of Directors; (2) to
consider and act upon a proposal to approve the Private
Placement; (3) to consider and act upon a proposal to amend
the Companys Certificate of Incorporation to increase the
authorized share capital of the Company from
50,000,000 shares of common stock to
100,000,000 shares of common stock with the same par value
of $0.01 per share; (4) to consider and act upon a proposal
to amend the Companys Certificate of Incorporation to
increase the authorized share capital of the Company from
500,000 shares of preferred stock to 1,500,000 shares
of preferred stock with the same par value of $1.00 per share;
(5) to consider and act upon a proposal to amend the
Companys Certificate of Incorporation to limit the
liability of the directors of the Company to the extent
permitted under Section 402(b) of the NYBCL; (6) to
consider and act upon a proposal to approve the adoption of the
2007 Plan; (7) to consider and act upon a proposal to
ratify the appointment of PricewaterhouseCoopers LLP as
independent accountants of the Company for the fiscal year
ending December 31, 2007; and (8) in the event there
are insufficient votes at the time of the annual meeting to
adopt Proposals 2, 3, 4, 5 and 6, to consider and act upon
a proposal to adjourn or postpone the annual meeting in order to
solicit additional proxies.
Proxy
Solicitation
This proxy statement and the enclosed form of proxy are expected
to be mailed on or about August 31, 2007. All expenses of
the Company in connection with this solicitation of proxies will
be borne by the Company. Proxies may be solicited by directors,
officers and other employees of the Company in person or by
mail, telephone, facsimile or
e-mail,
without additional compensation. Representatives of
MatlinPatterson may also contact shareholders in connection with
the solicitation of proxies. The Company has also retained
MacKenzie Partners, Inc. to aid in the solicitation of proxies
with respect to shares held by broker-dealers, financial
institutions, and other custodians, fiduciaries and nominees for
a fee of approximately $15,000, plus certain other fees for
related services and reasonable out-of-pocket expenses. The
Company will also request brokerage firms, nominees, custodians
and fiduciaries to forward proxy materials to the beneficial
owners of shares held of record by such persons and will
reimburse such persons and the Companys transfer agent for
their reasonable out-of-pocket expenses in forwarding such
materials but these individuals will receive no additional
compensation for these solicitation services.
Voting by
Mail, Internet or Telephone
Shareholders who cannot attend the annual meeting in person can
be represented by proxy. Most shareholders have a choice of
voting over the Internet, using a toll-free telephone number or
completing the proxy card in the form enclosed and mailing it in
the envelope provided. Please refer to your proxy card or the
information forwarded by your bank, broker or other nominee to
see which options are available to you.
A proxy may be revoked at any time before it is exercised by
giving notice of revocation to the Secretary of the Company, by
executing a later-dated proxy (including an Internet or
telephone vote) or by attending and voting in person at the
annual meeting. The execution of a proxy will not affect a
shareholders right to attend the annual meeting and vote
in person, but attendance at the annual meeting will not, by
itself, revoke a proxy. Proxies properly completed and received
prior to the annual meeting and not revoked will be voted at the
annual meeting.
21
VOTING,
RECORD DATE AND QUORUM
Proxies will be voted as specified or, if no direction is
indicated on a proxy, will be voted
(1) For the election of the three
(3) persons named as nominees under Election of
Directors; (2) For the proposal to
approve the Private Placement; (3) For
the proposal to amend the Companys Certificate of
Incorporation to increase the authorized share capital of the
Company from 50,000,000 shares of common stock to
100,000,000 shares of common stock with the same par value
of $0.01 per share, (4) For the proposal
to amend the Companys Certificate of Incorporation to
increase the authorized share capital of the Company from
500,000 shares of preferred stock to 1,500,000 shares
of preferred stock with the same par value of $1.00 per share;
(5) For the proposal to amend the
Companys Certificate of Incorporation to limit the
liability of the directors of the Company to the extent
permitted under Section 402(b) of the NYBCL;
(6) For the proposal to adopt the 2007
Plan; (7) For the ratification of the
appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending
December 31, 2007; and (8) For the
proposal for adjournment or postponement of the annual meeting
in order to solicit additional proxies in the event there are
insufficient votes at the time of the annual meeting to adopt
Proposals 2, 3, 4, 5 and 6.
As to any other matter or business which may be brought before
the annual meeting, including any adjournment(s) or
postponement(s) thereof, a vote may be cast pursuant to the
proxy in accordance with the judgment of the person or persons
voting the same. As of the date hereof, the Board does not know
of any such other matter or business.
The close of business on August 10, 2007 has been fixed as
the record date for the determination of shareholders entitled
to vote at the annual meeting. 16,000,352 shares of common
stock were outstanding as of the record date. Each shareholder
will be entitled to cast one vote, in person or by proxy, for
each share of common stock held. There are no other shares of
voting stock of the Company outstanding. The presence, in person
or by proxy, of the holders of at least a majority of the shares
of common stock entitled to vote at the annual meeting is
necessary to constitute a quorum at the annual meeting.
Abstentions and broker non-votes (as described below) and votes
to withhold authority are counted in determining
whether a quorum has been reached on a particular matter. Votes
to withhold authority are treated the same as abstentions for
purposes of the voting requirements described below.
If you hold your shares in street name through a
broker or other nominee, your broker or nominee may not be
permitted to exercise voting discretion with respect to certain
matters. Thus, if you do not give your broker or nominee
specific instructions, your shares may not be voted on those
matters and will not be counted in determining the number of
shares necessary for approval. Your broker will be
permitted to exercise voting discretion with respect to
Proposal 1, Proposal 7 and Proposal 8. Your
broker will not be permitted to exercise voting
discretion with respect to any of the Investment Proposals.
You can cast one vote for each share of First Albany common
stock you own. The proposals require different percentages of
votes in order to approve them:
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For the election of directors, the three nominees receiving the
most For votes from the shares present and
entitled to vote at the annual meeting, either in person or by
proxy, will be elected. Abstentions will not be treated as votes
cast at the annual meeting for such purpose.
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To be approved, Proposal 2 must receive
For votes constituting a majority of the
votes cast at the annual meeting with respect to shares entitled
to vote thereon. If you abstain from voting, it will have the
same effect as an Against vote. Broker
non-votes will not be treated as votes cast at the annual
meeting for such purpose.
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To be approved, Proposal 3 must receive
For votes from the holders of a majority of
the shares outstanding as of the record date. If you abstain
from voting, it will have the same effect as an
Against vote. Broker non-votes will also have
the same effect as an Against vote.
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To be approved, Proposal 4 must receive
For votes from the holders of a majority of
the shares outstanding as of the record date. If you abstain
from voting, it will have the same effect as an
Against vote. Broker non-votes will also have
the same effect as an Against vote.
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To be approved, Proposal 5 must receive
For votes from the holders of a majority of
the shares outstanding as of the record date. If you abstain
from voting, it will have the same effect as an
Against vote. Broker non-votes will also have
the same effect as an Against vote.
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To be approved, Proposal 6 must receive
For votes constituting a majority of the
votes cast at the annual meeting with respect to shares entitled
to vote thereon. If you abstain from voting, it will have the
same effect as an Against vote. Broker
non-votes will not be treated as votes cast at the annual
meeting for such purpose.
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To be approved, Proposal 7 must receive
For votes constituting a majority of the
votes cast at the annual meeting with respect to shares entitled
to vote thereon. If you abstain from voting, it will have the
same effect as an Against vote. Broker
non-votes will not be treated as votes cast at the annual
meeting for such purpose.
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To be approved, Proposal 8, should it be presented for a
vote at the annual meeting, must receive For
votes constituting a majority of the votes cast with respect to
shares entitled to vote thereon, whether or not a quorum is
present. Abstentions and broker non-votes will not be treated as
votes cast at the annual meeting for such purpose.
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The Board unanimously recommends that the shareholders vote
FOR (1) the election of the three
(3) persons named as nominees under Election of
Directors; (2) the proposal to approve the
Companys issuance and sale of shares of common stock to
certain qualified investors in a private placement; (3) the
proposal to amend the Companys Certificate of
Incorporation to increase the authorized share capital of the
Company from 50,000,000 shares of common stock to
100,000,000 shares of common stock with the same par value
of $0.01 per share, (4) the proposal to amend the
Companys Certificate of Incorporation to increase the
authorized share capital of the Company from 500,000 shares
of preferred stock to 1,500,000 shares of preferred stock
with the same par value of $1.00 per share; (5) the
proposal to amend the Companys Certificate of
Incorporation to limit the liability of the directors of the
Company to the extent permitted under Section 402(b) of the
NYBCL; (6) the proposal to adopt the First Albany Companies
Inc. 2007 Incentive Compensation Plan; (7) the ratification
of the appointment of PricewaterhouseCoopers LLP as independent
accountants of the Company for the fiscal year ending
December 31, 2007; and (8) the proposal for
adjournment or postponement of the annual meeting in order to
solicit additional proxies in the event there are insufficient
votes at the time of the annual meeting to adopt
Proposals 2, 3, 4, 5 and 6.
23
PROPOSAL NO. 1
ELECTION
OF DIRECTORS
The Bylaws of the Company provide that effective as of the
annual meeting the Board shall consist of seven directors
elected in three classes. Three directors will be elected at the
annual meeting to serve for a three-year term expiring at the
annual meeting of shareholders in 2010. The Board has nominated
three persons as directors. The Board recommends that
shareholders vote FOR the election of these nominees.
If the enclosed proxy card is duly executed and received in time
for the annual meeting, and if no contrary specification is made
as provided therein, it will be voted in favor of the election
of persons nominated as directors by the Board.
Each of the nominees has consented to serve as a director if
elected. Should any nominee for director become unable or
unwilling to accept election, proxies will be voted for a
nominee selected by the Board, or the size of the Board may be
reduced accordingly. The Board has no reason to believe that any
of the nominees will be unable or unwilling to serve if elected
to office. Any vacancy occurring during the term of office of
any director may be filled by the remaining directors for a term
expiring at the next meeting of shareholders at which the
election of directors is in the regular order of business. Each
of the nominees is presently a director of the Company. The
annual meeting shall constitute a special meeting for the
election of directors as may be required by the provisions of
Section 603 of the New York Business Corporation Law.
As discussed more fully below with respect to
Proposal No. 2 Approval of the Private
Placement, the Company has agreed that on or prior to the
closing date of the Private Placement, the Company will cause
the size of its Board of Directors to be increased from seven to
nine and to cause certain of its current directors designated by
MatlinPatterson to resign. The remaining directors would appoint
directors designated by MatlinPatterson to fill the resulting
vacancies. The Company has been advised that MatlinPatterson
currently intends to nominate to the Board three representatives
of MatlinPatterson and its affiliates, as well as
Mr. Fensterstock. Mr. McNamee and Mr. McNierney
will continue as members of the Board. It is currently expected
that Nicholas A. Gravante, Jr., Dale Kutnick and Carl
Carlucci will also continue as members of the Board following
the closing of the Private Placement until asked to resign in
accordance with the Investment Agreement, at which time, the
remaining directors will fill the resulting vacancies with
directors designated by MatlinPatterson.
Set forth below is certain information furnished to the Company
by the director nominees and by each of the incumbent directors
whose terms will continue following the Meeting.
Directors
of the Company
The directors nominated for election whose terms will expire in
2010 are as follows:
PETER J. MCNIERNEY, age 42, joined First Albany in
2002 as the Director of Investment Banking, and was appointed as
President and Chief Executive Officer in June 2006. Prior to
joining First Albany, Mr. McNierney was a Managing Director
and the Head of the Healthcare and Communications Services
groups at Robertson Stephens. Prior to that, Mr. McNierney
was a Vice President in the Healthcare Group at Smith Barney.
Mr. McNierney received a BA and a JD/MBA from the
University of Texas at Austin. Mr. McNierney has been a
director of the Company since June 2006.
ALAN P. GOLDBERG, age 62, joined First Albany in
1980. Mr. Goldberg became Vice Chairman of the Company in
June 2006. Mr. Goldberg served as the Companys
President from 1989 to June 2006, as Chief Executive Officer
from 2003 to June 2006 and as Co-Chief Executive Officer from
1993 until 2002. Mr. Goldberg is a Director of MVP Health
Care (a private company that provides health benefit plans). He
is active in industry and civic organizations and serves on the
board of several nonprofit institutions. Mr. Goldberg has
been a director of the Company since its incorporation in 1985.
CARL P. CARLUCCI, Ph.D., age 58, has been
Executive Vice President and Chief Financial Officer of the
University of South Florida since 2001. Prior to joining the
University of South Florida he was appointed First Deputy
Comptroller, Office of the State Comptroller, State of New York
from 1999 to 2001. From 1993 to
24
1999, Dr. Carlucci was Executive Vice President of the
University at Albany, State University of New York.
Dr. Carluccis public service has included the
positions of Secretary to the New York State Assembly
Ways & Means Committee and Director of the New York
Assembly Higher Education Committee. His prior experience in
higher education has also included the position of Vice
President for Administration at Brooklyn College and serving on
the faculty of the Public Administration Departments of Baruch
College of City University of New York and the University at
Albanys Rockefeller College. Dr. Carlucci is Chair of
the Audit Committee and is a member of the Executive
Compensation Committee; he has served as a director of the
Company since 2003.
The Board recommends a vote FOR each of the three Director
nominees.
The following directors terms will expire at the annual
meeting of shareholders in 2008:
GEORGE C. McNAMEE, age 60, joined First Albany in
1969. Mr. McNamee has been Chairman of the Company since
its inception and also serves as Managing Partner and Managing
Director of FA Technology Ventures. Mr. McNamee was
Co-Chief Executive Officer of the Company from 1993 to 2002. In
addition, Mr. McNamee is Chairman of Plug Power Inc. (a
leading fuel cell developer) and a director of iRobot
Corporation (a designer and manufacturer of robots).
Additionally, he is a director of several private companies
including Autotask Corporation, CORESense Inc., MetaCarta Inc.,
and StreetEasy. He also serves on the Board of Directors of the
New York Conservation Education Fund and is a Trustee of the
Albany Academy for Girls. He received his Bachelor of Arts
degree from Yale University. Mr. McNamee has been a
director of the Company since its incorporation in 1985.
SHANNON P. OBRIEN, age 48, is Chief Executive
Officer of the Girl Scouts, Patriots Trail Council, Inc.
since February 2005. Ms. OBrien was the State
Treasurer and Receiver General for the Commonwealth of
Massachusetts from 1999 to January 2003. The 2002 Democratic
Nominee for Governor of Massachusetts, Ms. OBrien
also served previously for eight years in the Massachusetts
Legislature. She was Vice President for External Affairs for
Community Care Systems, a behavioral healthcare network and
taught at Boston University School of Communications. A graduate
of Yale University and Boston University School of Law, she
practiced law with the firm of Morrison Mahoney and Miller
before entering the legislature. Ms. OBrien is Chair
of the Committee on Directors and Corporate Governance, a member
of the Audit Committee and has been a director of the Company
since 2003.
The following directors terms will expire at the annual
meeting of shareholders in 2009:
NICHOLAS A. GRAVANTE, JR., age 46, has been a
partner at the law firm of Boies Schiller & Flexner
LLP since July 1, 2000. Prior to that time he was a partner
at Barrett, Gravante, Carpinello & Stern, LLP in New
York City since 1992. Mr. Gravante practices law in the
areas of corporate litigation and white-collar criminal defense.
He is also a Trustee of the Community Service Society of New
York, the Brooklyn Public Library, the Columbia Law School
Association, a member of the Board of Governors at the Lords
Valley Country Club in Lords Valley, Pennsylvania and a member
of the Alumni Board of Governors at Poly Prep Country Day
School. Mr. Gravante is Chair of the Executive Compensation
Committee, a member of the Committee on Directors and Corporate
Governance and has been a director of the Company since 2003.
DALE KUTNICK, age 57, is Senior Vice President of
Research at Gartner, Inc., and has been there since April 2005
when Gartner acquired his previous employer, Meta Group. He was
co-founder, Chairman and a director of Meta Group, Inc., a
research and consulting firm focusing on information technology
and business transformation. Mr. Kutnick served as Chief
Executive Officer and Research Director of Meta Group, Inc.
since its inception in January 1989 until 2002. Prior to
co-founding Meta Group, Inc., Mr. Kutnick was Executive
Vice President of Research at Gartner Group, Inc. and an
Executive Vice President at Gartner Securities. Prior to his
experience at Gartner Group, Inc., he served as an Executive
Director, Research Director and Principal at Yankee Group and as
a Principal at Battery Ventures, a venture capital firm.
Mr. Kutnick is a graduate of Yale University.
Mr. Kutnick is a member of the Committee on Directors and
Corporate Governance, a member of the Audit Committee and has
been a director of the Company since 2003.
25
GOVERNANCE
OF THE COMPANY
The Board of Directors held nineteen (19) meetings during
the Companys fiscal year ended December 31, 2006. The
committees of the Board each held the number of meetings noted
below in Committees of the Board. During 2006, each
Director attended at least 86% of the total number of meetings
of the Board (while he or she was a member) and at least 82% of
the total number of meetings of committees of the Board on which
he or she served. Directors are encouraged to attend the annual
meeting of shareholders, and all directors attended last
years meeting. Walter Fiederowicz served as the
Boards lead director until he resigned effective
September 28, 2006, and the position previously held by him
is currently vacant. The Board determined that each of
Messrs. Carlucci, Gravante, Fiederowicz, Arthur J. Roth,
and Kutnick and Ms. OBrien qualify as an
independent director as defined in the NASDAQ Stock
Market listing standards. Messrs. Fiederowicz and Roth
ceased to be directors on September 28, 2006.
The Company has a Code of Business Conduct and Ethics applicable
to all employees of the Company and members of the Board of
Directors. The Code, as well as the current charters of each of
the Committees listed below, are available on the Companys
website (www.firstalbany.com). The Company intends to post
amendments to or waivers from its Code at this location on its
website.
The Company has also adopted a procedure by which shareholders
may send communications as defined within Item 407(f) of
Regulation S-K
under the Securities Exchange Act of 1934, as amended (the
Exchange Act), to one or more members of the Board
of Directors by writing to such director(s) or to the whole
Board of Directors in care of the Companys Corporate
Secretary at the following address: First Albany Companies Inc.,
677 Broadway, Albany, New York
12207-2990,
Attn: Corporate Secretary. Any such communications will be
promptly distributed by the Corporate Secretary to such
individual director(s) or to all directors if addressed to the
whole Board of Directors.
Committees
of the Board
The Board of Directors has three standing committees: the Audit
Committee, the Executive Compensation Committee and the
Committee on Directors and Corporate Governance.
The Audit Committee. The Audit Committee,
responsible for reviewing the Companys financial
statements, met eleven (11) times during 2006. The Audit
Committee operates pursuant to a written charter that the
Committee and the Board reviews each year to assess its
adequacy. Among the primary purposes of the Audit Committee are
assisting the Board of Directors in its oversight of the
integrity of the Companys financial reporting process; its
compliance with legal and regulatory requirements; the
qualifications, independence and performance of its independent
auditors; and the performance of the Companys internal
accounting controls. In addition, the Audit Committee decides
whether to appoint, retain or terminate the Companys
independent auditors and pre-approves all audit, audit-related,
tax and other services, if any, to be provided by the
independent auditors. The Audit Committee also prepares the
Audit Committee report required by the rules of the Securities
and Exchange Commission (SEC) for inclusion in the
Companys annual proxy statement. Until September 28,
2006, this committee was comprised of Mr. Roth, who served
as chair, Ms. OBrien and Mr. Fiederowicz.
Messrs. Roth and Fiederowicz ceased to be directors on
September 28, 2006. Currently, this committee is comprised
of Mr. Carlucci, who serves as Chair, Ms. OBrien
and Mr. Kutnick. Each member of the Audit Committee is an
independent director as defined in the NASDAQ Stock
Market listing standards, and is independent within the meaning
of
Rule 10A-3
under the Exchange Act and the Companys Corporate
Governance Guidelines. Each of Mr. Carlucci and
Mr. Kutnick are qualified as an audit committee financial
expert within the meaning of Item 401(h) of
Regulation S-K
under the Exchange Act, and the Board has determined that they
have accounting and related financial management expertise
within the meaning of the NASDAQ Stock Market listing standards.
We have adopted policies on reporting of concerns regarding
accounting, internal accounting controls or auditing matters
(Accounting Matters). Any employees who have
concerns about Accounting Matters may report their concerns to
any of the following: (i) the employees supervisor,
(ii) an attorney in the Legal Department of First Albany,
(iii) the Companys toll free anonymous voice mailbox
at 1-866-480-6132, or (iv) the Companys
26
anonymous drop-box, which may be accessed through the
Companys website (www.firstalbany.com). The full text of
the Complaint Procedures for Accounting and Auditing Matters is
available on our website.
The Audit Committees procedures for the pre-approval of
the audit and permitted non-audit services are described in
Audit Committee Report Audit Committee
Pre-Approval Policy.
The Executive Compensation Committee. Under
its charter, the primary purposes of the Executive Compensation
Committee are to determine and approve the compensation of the
Companys Chief Executive Officer and make recommendations
to the Board of Directors with respect to executive compensation
(including compensation of executive officers other than the
Chief Executive Officer) and the Companys incentive-based
compensation and equity-based plans that are subject to Board
approval. Based on recommendations from the Chief Executive
Officer, the Executive Compensation Committee reviews and
approves the compensation of all executive officers of the
Company other than the Chief Executive Officer. The Committee
also administers the Companys 1999 Long-Term Incentive
Plan, 2001 Long-Term Incentive Plan and the 2003 Senior
Management Bonus Plan and will administer the 2007 Plan, if
approved by the shareholders. The Committee assists the Board of
Directors in its oversight of the development, implementation
and effectiveness of the Companys policies and strategies
relating to its human capital management function, including but
not limited to those policies and strategies regarding
recruiting, retention, career development and progression,
management succession (other than that within the purview of the
Committee on Directors and Corporate Governance), diversity and
employment practices. In addition, the Executive Compensation
Committee also prepares its report regarding the Compensation
Discussion and Analysis as required by the rules and regulations
of the SEC.
The Executive Compensation Committee is composed of two
independent directors and operates under a written charter
adopted by the Board, which was amended January 2004. Until
September 28, 2006, it was comprised of
Messrs. Carlucci and Fiederowicz. Currently, it is
comprised of Mr. Gravante, who serves as Chair, and
Mr. Carlucci. The Board annually reviews the NASDAQ Stock
Market listing standards definition of independence and has
determined that each member of the Committee is independent.
During the year 2006, the Committee met seven (7) times.
The Committee on Directors and Corporate
Governance. The Board established the Committee
on Directors and Corporate Governance in fiscal year 2002. The
Committee held two (2) meetings during 2006. Among its
specific duties, the Committee determines criteria for service
as director, reviews candidates and considers appropriate
governance practices. The Committee also oversees the evaluation
of the performance of the Board of Directors and Chief Executive
Officer and annually reviews the Corporate Governance
Guidelines, reporting to the Board any recommended changes. The
Committee considers nominees for directors proposed by
shareholders. To recommend a prospective nominee for the
Committees consideration, shareholders should submit the
candidates name and qualifications to the Companys
Corporate Secretary in writing to the following address: First
Albany Companies Inc., 677 Broadway, Albany, New York
12207-2990,
Attn: Corporate Secretary. The Committee on Directors and
Corporate Governance is comprised of Ms. OBrien, who
serves as Chair, and Messrs. Gravante and Kutnick. In
identifying and recommending nominees for positions on the Board
of Directors, the Committee on Directors and Corporate
Governance places primary emphasis on the criteria set forth in
our Corporate Governance Guidelines which include diversity, age
and skills, all in the context of an assessment of the perceived
needs of the Board. Recommendations by shareholders that are
made in accordance with these procedures will receive the same
consideration.
27
PROPOSAL NO. 2
APPROVAL
OF THE PRIVATE PLACEMENT
On May 14, 2007, the Company entered into an Investment
Agreement with MatlinPatterson providing for the issuance to
MatlinPatterson and certain co-investors which may be designated
by it, upon the terms and subject to the conditions of the
Investment Agreement, of 33,333,333 newly issued shares of the
Companys common stock, par value $0.01 per share, for an
aggregate cash purchase price of $50 million. The number of
shares issuable to MatlinPatterson in consideration of the
$50 million purchase price (the Purchased
Shares) is subject to upward adjustment (i) if the
Company incurs certain incremental employment-related
obligations as a result of the DEPFA Transaction not having
closed prior to the closing of the Private Placement and (ii)if
the Companys consolidated net tangible book value per
share at closing is less than $1.60, as more fully described
below.
In the event that the DEPFA Transaction closes after the closing
of the Private Placement, certain employees of the Company, who
will remain employed by the Company at the time of the closing
of the Private Placement and who would have otherwise have
become employed by DEPFA had the DEPFA Transaction closed prior
to the Private Placement, would be entitled to receive certain
cash payments and accelerated vesting of certain equity awards
triggered by MatlinPatterson gaining control of the Company that
they would not have been entitled to if the DEPFA Transaction
had closed first. In such an event, the Investment Agreement
provides that the number of Purchased Shares will be increased
to account for the cash bonuses or other amounts paid or payable
by the Company to any employee of the Municipal Capital Markets
Group (MCMG) that would not have been so paid had
the DEPFA Transaction closed prior to the closing of the Private
Placement, as well as the accelerated vesting of the restricted
stock awards and stock options held by such employees that would
not have occurred if the DEPFA Transaction had closed prior to
the closing of the Private Placement. In the event that our
employees entitled to receive such payments and to benefit from
the accelerated vesting of such awards and options do not waive
such rights, we expect the number of Purchased Shares to be
increased at the closing, without MatlinPatterson being required
to contribute more than the $50 million already
contemplated by the Investment Agreement. To the extent that the
affected employees are willing to waive their rights to such
payments and accelerated vesting, the number of additional
Purchased Shares will be reduced accordingly.
The Investment Agreement also provides that the number of
Purchased Shares will be further adjusted upwards, in addition
to the adjustment set forth above, if the net tangible book
value per share is less than $1.60 as of the closing date. In
such case, the number of Purchased Shares will be increased by a
factor reflecting the percentage shortfall represented by the
net tangible book value per share as of the closing date
compared to a target of $1.69 per share. There will first be a
pro forma adjustment to eliminate the effects of the DEPFA
Transaction on net tangible book value per share, including a
pro forma elimination of the incremental cash payments and
accelerated restricted stock awards and stock options referred
to above if the DEPFA Transaction has not closed prior to the
closing of the Private Placement. The net tangible book value
per share is calculated as the quotient of the tangible book
value on a given date (representing the sum of
shareholders equity plus temporary capital less intangible
assets) divided by the actual number of shares outstanding on
such date. As of June 30, 2007, the Companys net
tangible book value per share was $1.62.
Upon the closing of the Private Placement, and after giving
effect to the contemplated issuance to certain employees of
restricted stock units as described herein, MatlinPatterson is
currently expected to own between 70% and 75% of the outstanding
common stock (between 60% and 65% on a fully diluted basis),
based on the number of shares outstanding on June 25, 2007,
and after giving effect to an increase in the number of
Purchased Shares that may result from the adjustment provisions
of the Investment Agreement and which may further increase the
number of Purchased Shares.
The proceeds to the Company from the sale of the shares to
MatlinPatterson would be invested in the Companys ongoing
businesses, consistent with a strategic plan to be developed by
the Company and MatlinPatterson. The development of the
strategic plan is expected to be completed following the closing
of the Private Placement. It is currently expected that
approximately $20 million of the proceeds from the Private
Placement will be invested in the Companys subsidiary
Descap Securities Inc. to enable it to position more products
and take advantage of opportunities that we believe to exist in
the mortgage and asset-backed securities markets and to issue
primary debt financing. In addition, we currently expect that up
to $10 million will be committed to a fund managed
28
by the Companys subsidiary, FA Technology Ventures
Corporation, which invests in the emerging growth sectors of
information and energy technology. In addition, pursuant to the
Term Loan and Capital Lease Waiver described in our quarterly
report on
Form 10-Q
for the period ended June 30, 2006, we have agreed that
upon the closing of the Private Placement and the DEPFA
Transaction we will repay all outstanding loan and lease
obligations to a certain lender. If the DEPFA Transaction closes
prior to the Private Placement, we have agreed to prepay the
aggregate amounts of loan and lease obligations equal to 75% of
the net proceeds received by the Company and then pay the
remaining amounts upon closing of the Private Placement. We
believe the remaining proceeds from the Private Placement will
also provide us with additional resources to grow our
businesses, to seek to acquire other securities or advisory
businesses, to focus on our core investment products and service
strengths, to provide incentives to employees and to better meet
the needs of our clients, and we may also repay some or all of
our indebtedness. Immediately following the closing of the
Private Placement, we expect the Company to have over
$50 million in cash and working capital in excess of
$58 million and we believe the proceeds from the Private
Placement will allow the Company to increase existing capital
levels with each of its broker dealers. The Private Placement is
expected to close in the third quarter of 2007. The terms of the
Investment Agreement and the related Registration Rights
Agreement and Voting Agreements are more fully described below
under Summary of Terms of the Private Placement, and
copies of the Investment Agreement, the form of the Registration
Rights Agreement and the Voting Agreements are appended to this
proxy statement as Appendix A.
It is expected that, if the Private Placement is completed, the
Company will hire Mr. Lee Fensterstock, a securities
industry veteran, to act as the Companys Chief Executive
Officer. Mr. Fensterstock would also be elected to the
Companys Board of Directors and serve as its Chairman.
Pending the closing of the Private Placement,
Mr. Fensterstock has been engaged by the Company as a
consultant. Mr. Peter J. McNierney, currently the
Companys President and Chief Executive Officer, would
become the Companys President and Chief Operating Officer.
Mr. Fensterstock, 59, served on the Board of Directors of
PaineWebber, Inc. from January 1991 to September 1995 and
Gruntal & Co. from June 1996 to August 2000. In
February 2001, Mr. Fensterstock founded and became Chairman
and Co-Chief Executive Officer of Bonds Direct Securities LLC, a
market maker in investment grade fixed income instruments for
institutional investors. From October 2004 until March 2007,
Mr. Fensterstock was a Managing Director at
Jeffries & Co., co-heading its fixed income division.
From May 1, 2007 until June 30, 2007,
Mr. Fensterstock served as a consultant to MatlinPatterson.
Since July 1, 2007, Mr. Fensterstock has served as a
consultant to the Company and will continue in such a capacity
until the sooner of the closing of the Private Placement or
September 30, 2007.
In connection with the Private Placement, the Company would
issue or commit to issue under the 2007 Plan restricted stock
units in respect of up to 6,750,000 shares of common stock
to key employees who enter into non-compete and non-solicit
agreements with the Company and pursuant to the employment
agreement that the Company expects to enter into with
Mr. Fensterstock and has entered into with
Mr. McNierney. The restricted stock units would vest over a
three-year period following issuance.
The Company has agreed that on or prior to the closing date of
the Private Placement, the Company will cause the size of its
Board of Directors to be increased from seven to nine and to
cause certain of its current directors designated by
MatlinPatterson to resign. The remaining directors would appoint
directors designated by MatlinPatterson to fill the resulting
vacancies. The Company has been advised that MatlinPatterson
currently intends to nominate to the Board three representatives
of MatlinPatterson and its affiliates, as well as
Mr. Fensterstock. Mr. McNamee and Mr. McNierney
will continue as members of the Board. It is currently expected
that Nicholas A. Gravante, Jr., Dale Kutnick and Carl
Carlucci will also continue as members of the Board following
the closing of the Private Placement until asked to resign in
accordance with the Investment Agreement, at which time the
remaining directors will fill the resulting vacancies with
directors designated by MatlinPatterson. As the holder of a
majority of the outstanding shares of common stock following the
closing of the Private Placement, MatlinPatterson will have the
power to replace any or all of such directors in the future and
has indicated its intention to seek other qualified individuals
with experience in the securities industry or other relevant
skills or knowledge to become directors of the Company after the
closing.
29
In connection with the Investment Agreement, the Company has
agreed with MatlinPatterson to terminate the Companys
previously announced plans to reprice outstanding employee stock
options and to replace outstanding employee restricted stock
awards with stock appreciation rights.
The Company has agreed to reimburse MatlinPatterson for certain
reasonably incurred, documented expenses incurred in connection
with the negotiation and execution of the Investment Agreement
and the completion of the transactions contemplated thereby,
subject to certain limits. The Investment Agreement contains
other covenants of the Company, including an agreement of the
Company to operate its business in the ordinary course until the
purchase is completed. The Company has also agreed not to
solicit or initiate discussions with third parties regarding
other competing proposals and to certain restrictions on its
ability to respond to any unsolicited competing proposal. The
Investment Agreement also includes customary representations and
warranties of the Company and MatlinPatterson, indemnification
provisions for MatlinPatterson and termination provisions for
both the Company and MatlinPatterson.
Under applicable NASDAQ Marketplace Rules, the Private Placement
is subject to approval by a majority of the Companys
shareholders. Messrs. George McNamee and Alan Goldberg,
directors of the Company, and Mr. McNierney have agreed
with MatlinPatterson to vote the shares of common stock owned by
them in favor of the transaction. These persons collectively own
approximately 19% of the outstanding shares of common stock.
Therefore, shares representing approximately 32% of the
outstanding shares of common stock of the Company as of the
record date, in addition to those subject to the voting
agreement with MatlinPatterson to vote in favor of the
transaction, must be voted in favor of Proposals 2, 3, 4
and 5 for these proposals to be approved. The completion of the
Private Placement is also subject to the satisfaction or waiver
of a variety of other closing conditions.
The Purchased Shares would be sold by the Company in the Private
Placement in reliance on an exemption from the registration
requirements of the Securities Act. MatlinPatterson and the
Company would, at the closing of the Private Placement, enter
into a Registration Rights Agreement pursuant to which
MatlinPatterson would acquire rights to cause the Company to
register, under specified circumstances, the subsequent offer
and resale of the Purchased Shares.
The Investment Agreement contains representations and warranties
of the Company and MatlinPatterson made to each other. The
statements embodied in those representations and warranties are
qualified by information in confidential disclosure schedules
that the Company and MatlinPatterson have exchanged in
connection with signing the Investment Agreement. Please note
that certain representations and warranties were made as of a
specified date, may be subject to a contractual standard of
materiality different from those generally applicable to
shareholders, or may have been used for the purpose of
allocating risk between the parties rather than establishing
matters as fact.
Background
of the Private Placement
The Company experienced losses in several of our key segments in
2005 and 2006, including equities sales and trading, equity
investment banking and fixed income sales and trading.
Recognizing these losses and the need to maintain liquidity
requirements, in the spring of 2006 the Board retained
Freeman & Co. Securities LLC (Freeman) as
its financial advisor to establish a comprehensive process to
entertain both a strategic sale of, or a strategic investment
in, the Company. We began to work immediately on preparing
materials for potential investors, and in the spring and summer
of 2006 a broad target list of over thirty names was developed,
which led to focused discussions with twenty-two parties. After
discussions and preliminary due diligence, three potential
investors emerged. The first of these formally withdrew without
providing a letter of intent or a term sheet and while both the
second and third gave verbal indications of interest at a
valuation of approximately tangible book value, neither provided
a written letter of intent or term sheet, and the process
concluded unsuccessfully.
The Boards conclusions from the formal process were that
(1) there was apparent potential market interest to buy the
entire Company for tangible book value, but no written offers
were received, (2) the process was beginning to have a
negative effect upon employee retention and (3) the Company
should focus on its strategy to repair the
30
financials of the Company that was begun in June 2006 and
suspend the formal process while still selectively entertaining
or soliciting interest in a sale or investment.
During the December 22, 2006 meeting of the Board of
Directors, Peter McNierney provided the Board with an update on
the financial performance of the Company. He noted that the
results were below budget projections by $3-4 million and
stated that although the Company could continue to survive as a
stand-alone entity, this would not be the preferred course of
action. Mr. McNierney then presented an analysis and
comparison of potential transactions the Company might undertake
through a merger, an acquisition or by a third party investment.
In the first quarter of 2007, the Company had active
conversations with seven potential investors. The first
contacted Peter McNierney to make an employment offer, and after
a formal decline, took a concentrated look at purchasing the
Company as a whole. Ultimately, it formally withdrew due to
uncertainty of integration of the Company into its existing
platform. Two additional firms took an active look at the
Municipal Capital Markets Group (MCMG), one of which
took a second active look at MCMG and the Descap division, but
ultimately, both companies also withdrew. DEPFA BANK plc
(DEPFA) also expressed a strong interest in MCMG.
The conversations with DEPFA resulted in the sale of MCMG to
DEPFA for a cash purchase price equal to $12 million plus
the value of the municipal bond inventory used in the business,
which is expected to range between $40-$50 million at
closing. Following entry into the MCMG transaction with DEPFA,
two investors took an active look at the remaining divisions of
the Company. One investor decided not to submit a proposal at
the time based on employee turnover and the continued losses of
the Company. The second investor, composed of two parties, was
unable to get comfortable with the key employee turnover and
viewed the fixed income business as non-productive, whose only
value was from capital, less the closing costs. MatlinPatterson
then indicated its interest in the Company.
On March 20, 2007, MatlinPatterson executed a
confidentiality agreement with the Company pursuant to which the
Company was to provide confidential information to
MatlinPatterson in connection with a potential transaction.
Following initial due diligence and discussions with senior
management at the Company, MatlinPatterson indicated interest in
pursuing a direct investment in the Company.
During the January 3, 2007 meeting of the Board, a special
committee of the Board (the Special Committee),
comprised of Nicholas A. Gravante, Jr., Carl P. Carlucci,
Dale Kutnick and Shannon P. OBrien, was formed to assist
in evaluating proposals from potential investors and to make
recommendations to the Board regarding any issues requiring
Board consideration with respect to any proposals received from
such investors. Bingham McCutchen LLP was then retained as legal
counsel for the Special Committee.
At the Board meeting on April 5, 2007, Mr. McNierney
gave an update on the operating results for the quarter. He
stated that the Company expected to report a significant loss
for the quarter. Mr. McNierney then lead the Board in a
discussion of potential transactions, including a potential
transaction with MatlinPatterson. The duties of the outside
directors and the role of the Special Committee was also
discussed. The Board appointed Ms. OBrien and
Mr. Kutnick co-chairs of the Special Committee.
On April 25, 2007, MatlinPatterson delivered a draft letter
of intent and term sheet (the Letter of Intent) to
the Board for its review and approval. It contemplated a
$40 million capital infusion into the Company at $1.50 per
share, thereby obtaining an approximate 52.9% ownership position
in the Company on a fully diluted basis after grants of
restricted stock based awards by the Company for employee
retention. In addition, the Letter of Intent included an
exclusivity period until May 9, 2007 during which the
Company would not negotiate with or solicit competing proposals
from other bidders.
On April 26, 2007, at a meeting of the Board, members of
the Companys management reviewed with the Board the draft
Letter of Intent submitted by MatlinPatterson. The
Companys financial and legal advisors participated in the
meeting, as did counsel for the Special Committee.
Mr. Gravante reported on the Special Committees
efforts to confirm the level of interest of other interested
parties, including the Special Committees direct
communications with such other interested parties without
management present, and the Special Committees discussions
with Freeman, which anticipated the delivery of a fairness
opinion to the Board prior to authorization of a definitive
agreement in light of the potential for MatlinPatterson to
exercise voting control following completion of the proposed
investment. The Special Committee reported that it was satisfied
with the
31
process and felt that all reasonably possible scenarios and
interested parties had been considered and that the efforts made
were sufficient to indicate that the MatlinPatterson proposal
was the best available for the Company and its shareholders. At
this meeting, the Companys Board discussed their fiduciary
duties with respect to the proposed Letter of Intent presented.
Following the discussion, the Board requested that certain
revisions to the Letter of Intent be proposed to MatlinPatterson
and their counsel, including that the Letter of Intent provide
for a go shop provision to be included in the
definitive agreement giving the Company the ability to solicit
other potential investors following execution of the definitive
agreements with MatlinPatterson. The Board expressed that, in
consideration for a go-shop provision in the
definitive agreement, it would be willing to agree to a period
of exclusivity ending on May 17, 2007, during which the
Company would not negotiate with other bidders.
Also at the meeting on April 26, 2007, members of the
Companys management reviewed with the Board a revised
draft of the Letter of Intent received from MatlinPatterson. The
Companys legal advisors and counsel for the Special
Committee participated in the meeting. The revised Letter of
Intent outlined a no shop provision to be included
in the definitive agreement. In accordance with the proposed
no shop provision, the Company would not solicit
other investors following execution of the definitive agreement
but could consider unsolicited offers from other investors in
accordance with the Boards fiduciary duties and the terms
of the definitive agreement. The revised Letter of Intent also
provided for a cap on the reimbursement to MatlinPatterson of
its expenses in the event the Company accepted an unsolicited
offer in accordance with the terms of the definitive agreement.
In addition, the revised Letter of Intent provided for an
exclusivity period until May 9, 2007, during which the
Company could not negotiate with potential investors other than
MatlinPatterson. After considering the revised Letter of Intent,
the Board authorized members of the Companys senior
management to execute the Letter of Intent with MatlinPatterson.
The Letter of Intent was executed by the Company and
MatlinPatterson on April 26, 2007.
At a meeting of the Special Committee on May 1, 2007,
Mr. McNierney provided a status report regarding the
negotiations with, and the due diligence conducted by,
MatlinPatterson to date. He explained that MatlinPatterson
planned to have Mr. Fensterstock serve as the new Chairman
of the Board and Chief Executive Officer of the Company
following the closing of the Private Placement, with
Mr. McNierney becoming the President and Chief Operating
Officer and Mr. Coad remaining the Chief Financial Officer.
MatlinPatterson also required execution of the definitive
Investment Agreement to be contingent upon certain designated
Company employees entering into non-compete and non-solicit
agreements that would become effective upon the closing of the
Private Placement, and with such closing being conditioned on a
certain number of additional employees entering into such
agreements and remaining employed by the Company at the closing
of the proposed investment. The Special Committee set a
tentative agenda for its upcoming meetings and discussed the
timeline for receiving certain reports from its officers, legal
counsel and financial advisor regarding the Companys
financial performance, including receipt of a written fairness
opinion from the Companys financial advisor, as well as
the possible consequences of the investment by MatlinPatterson.
Please see the section entitled Opinion of our Independent
Financial Advisor below for information on Freeman and the
fairness opinion. The Special Committee then discussed whether
there existed any potential conflicts of interest among its
members that might impact its impartiality. The Special
Committee determined that no member had any potential conflicts
of interest in addressing the issues presented and noted that
the Special Committee was well positioned to act impartially in
the best interests of the shareholders, particularly with
respect to equity awards and employment matters.
The Special Committee met again on May 4, 2007 without
management present and during which it reviewed its duties under
the Companys Certificate of Incorporation and relevant
fiduciary law. After management was asked to join the meeting,
Mr. McNierney provided a status report regarding the
transaction structure, due diligence and process. First and
second rounds of due diligence had been completed by
MatlinPatterson and no significant issues had arisen. The
Special Committee considered certain specific regulatory matters
raised as part of legal and regulatory due diligence.
During the Special Committee meeting on May 6, 2007,
Freeman presented an overview of its market survey on behalf of
the Company. Mr. McNierney provided a status report on the
Companys efforts to secure key employees continued
employment as part of the transaction, including
MatlinPattersons indication that it would require
Messrs. McNierney and Coad to amend their employment
agreements prior to the execution of the Investment Agreement,
that it would similarly require certain other key employees to
execute non-compete and
32
non-solicit agreements that would be conditioned on the closing
of the proposed investment and that it would require certain
additional key employees to execute such non-compete and
non-solicit agreements between the signing of the Investment
Agreement and closing and remaining employed by the Company at
the closing of the proposed investment. The Special Committee
engaged in a lengthy discussion of specific provisions contained
in the draft Investment Agreement received from
MatlinPattersons counsel. The Special Committee also
discussed the challenges and logistics of the resignation of
current directors and the appointment of new directors as
required by the Investment Agreement. Ms. OBrien also
reported separately to the Special Committee the conversation
she and Mr. Kutnick had with Mr. Fensterstock
regarding MatlinPattersons plans for the future financial
success of the Company and its intentions with respect to
employee compensation. The Special Committee resolved that it
would not seek compensation for performance of their duties on
the Committee, other than the usual per-meeting fees.
During a telephonic discussion between members of the Special
Committee and its financial advisors and management on
May 8, 2007, Dewey Ballantine LLP, outside counsel to the
Company, provided an update on the status of negotiations with
counsel for MatlinPatterson. There were several key provisions
of the Investment Agreement that the parties were continuing to
negotiate. Dewey Ballantine LLP also reported that
MatlinPatterson would be seeking voting agreements from
Messrs. McNierney, McNamee and Goldberg. Freeman reviewed
its draft presentation to the Board, which covered an overview
of the situational analysis, the process leading up to the
MatlinPatterson offer and the financial analysis of the proposed
investment, to be presented to the full Board.
Freemans presentation characterized the Company as being
in a critical survival situation due to continued
financial losses and key employee losses. Freeman was concerned
that continued losses could be funded only by sales of inventory
to free-up
capital and this would continue to erode the tangible book value
at an accelerated pace. The Special Committee discussed
additional concerns that this could threaten the DEPFA
Transaction as the purchase agreement entered into with DEPFA
contained conditions to closing that set forth minimum net
capital requirements on a pro-forma stand alone basis.
Therefore, Freeman recommended that the Company accept the
formal, fully vetted and diligenced offer by MatlinPatterson
instead of risking the deal by postponing it and pursuing
another offer.
During that meeting, Mr. McNierney reported that
MatlinPatterson was considering increasing its investment in the
Company from $40 million to $50 million. The Special
Committee asked that, in the event such a proposal materialized,
it receive analysis from its financial advisor with respect to
the merits of such an increased investment. Mr. McNierney
also reported on the status of discussions with a group of
employees from another middle-market institutional investment
bank considering joining the Company.
The Board met on May 9, 2007 and Mr. McNierney updated
the Board on the MatlinPatterson deal discussions. He summarized
the outstanding issues as the following: a per share purchase
price adjustment in the event that the DEPFA Transaction has not
closed prior to the closing of the MatlinPatterson investment; a
per share purchase price adjustment based on a significant drop
in net tangible book value; the retention of key employees; the
indemnification language; reimbursable expenses upon breakup of
the transaction; the drop dead date; and the material adverse
change definition. Representatives of Dewey Ballantine LLP led
the Board through a discussion of the significance of each of
the above issues, as well as other terms of the deal, including
a discussion of the Registration Rights Agreement and the Voting
Agreements. Mr. McNierney then described
MatlinPattersons proposal to increase its investment in
the Company. The Board then considered MatlinPattersons
proposal to (a) extend the exclusivity period from May 9 to
May 14, 2007, and (b) increase the proposed
capitalization to $50 million. The Board resolved to
authorize extension of the exclusivity period under the Letter
of Intent to May 14, 2007, and decided to discuss the
proposed increase in capitalization further. In that regard, the
Board asked counsel to review whether an increase in ownership
could impact any supermajority thresholds in the organizational
documents of the Company, and asked Freeman to analyze the
financial impact of an increase in the size of the proposed
investment to $50 million.
At a meeting of the Special Committee on May 11, 2007,
Freeman provided its analysis of the proposed $10 million
additional capitalization. Freeman stated that the additional
capitalization would provide MatlinPatterson with a voting
interest of 59.9% on an undiluted basis and 58.4% on a
fully-diluted basis compared with a voting interest of 54.4%
undiluted and 52.9% fully diluted if MatlinPattersons
investment were limited to $40 million. These percentages
were calculated taking into account approximately
6.0 million restricted stock units
33
to be issued to certain key employees in connection with the
proposed investment, as was contemplated at the May 11,
2007 Special Committee meeting, based upon the assumption that
each restricted stock unit granted under the 2007 Plan would
carry one vote upon being granted and would vote with the
Companys common stock. Based on this analysis, the
Companys legal advisors reported that the increased
ownership interest of MatlinPatterson based on the proposed
$10 million addition capitalization would not provide
MatlinPatterson with the ability to unilaterally meet any
supermajority voting thresholds under the NYBCL or the
Companys organizational documents. It was subsequently
determined that restricted stock units granted under the 2007
Plan would have no votes upon granting and the number of
restricted stock units was increased to 6.75 million.
Taking into account the fact that the restricted stock units
would have no votes upon granting, we currently expect that,
upon closing of the Private Placement, MatlinPatterson will have
a voting interest between 70% and 75% of our outstanding common
stock (between 60% and 65% on a fully diluted basis) based on
the number of shares outstanding on June 25, 2007, and
after giving effect to an increase in the number of Purchased
Shares that may result from the adjustment provisions of the
Investment Agreement and which may further increase the number
of Purchased Shares. These currently expected voting interests
would also not provide MatlinPatterson with the ability to
unilaterally meet any supermajority voting thresholds under the
NYBCL or the Companys organizational documents. Please see
the section entitled Proposal No. 2 Approval of
the Private Placement above for a discussion of
MatlinPattersons undiluted and fully-diluted voting
interest taking into account the non-voting characteristic of
the restricted stock units and the additional 750,000 restricted
stock units to be granted. Freemans analysis also found
that the additional $10 million would increase the
Companys pro forma tangible book value per share. The
Special Committee discussed MatlinPattersons intention to
earmark the additional $10 million investment for FA
Technology Ventures Corporation (FATV), the
Companys investment fund manager. Freeman reported that it
strongly supported the increased investment by MatlinPatterson,
noting that it would increase tangible book value per share and
achieve a more favorable tangible book value to cash ratio.
Mr. Coad further stated that the additional
$10 million would benefit the Company from an operational
perspective. Freeman also reported that it would be very
comfortable that the price at which the increased investment
would be made ($1.50 per share) would be fair to the Company
from a financial perspective. At the meeting, the Special
Committee questioned management regarding the likelihood that a
potential pricing adjustment in the Investment Agreement may be
triggered if the net tangible book value targets are not met as
of the closing date.
At a meeting of the Board and the Special Committee on
May 13, 2007, management presented an analysis on the
MatlinPatterson transaction from legal, operational, and
financial perspectives. Representatives of Dewey Ballantine LLP
reviewed in detail the terms of the proposed Investment
Agreement, form of Registration Rights Agreement and Voting
Agreements. The Board discussed various contingencies with
respect to the closing of the transaction, including the need
for additional non-compete and non-solicit agreements to be
secured from key employees, the risk of a potential price
adjustment in the event the net tangible book value target were
not met, and the ability of competing bidders to initiate a
potential alternative transaction.
Freeman then provided a financial analysis of the transaction
and its valuation of the Company. Freeman described the
Companys current financial status, including fifteen
consecutive quarterly operating losses leading to a reduced
tangible book value and stock price, and a negative impact on
employee retention. Freeman described the process by which the
Company had undertaken an attempt to find potential buyers or
strategic investors, as described above, concluding with its
belief that there were no other bidders besides MatlinPatterson.
Freeman further discussed the price adjustment feature based on
the net tangible book value trigger in the Investment Agreement.
Freeman further concluded that the consideration to be paid by
MatlinPatterson in the Private Placement was fair, from a
financial point of view, to the Company and described the
procedures and basis for that opinion.
Management discussed the operational and financial impacts of
the transaction, and recommended approval of the transaction.
The Special Committee also reviewed the numerous meetings and
substantial process undertaken by the Special Committee in its
evaluation of the transaction, confirmed the independence of its
members and the process undertaken, and offered its unanimous
recommendation that the Board approve the transaction. Following
discussion of the fairness opinion and the terms of the various
agreements, the Board unanimously approved the Private Placement
and authorized the officers to enter into the Investment
Agreement and related documents substantially as presented at
the meeting.
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On May 14, 2007, the Company entered into the Investment
Agreement with MatlinPatterson described below and attached
hereto as Appendix A providing for the issuance and
sale of Purchased Shares for gross proceeds of $50 million.
Please see the section Investment Agreement below
for information on the Investment Agreement.
Reasons
for the Private Placement
We believe that we need additional capital to more effectively
pursue our strategic objectives. After considering numerous
potential financing and strategic alternatives, including
alternate financing structures, seeking to sell the Company,
seeking a merger of the Company with another entity, and the
liquidation of the Company, the Board determined that the
Private Placement was the best available alternative and would
provide the greatest potential value for the shareholders, as
well as provide the necessary capital to pursue our long-term
strategic goals.
In making its determination to approve the Private Placement,
the Board formed an independent Special Committee to assist
management in evaluating various aspects of the transaction, and
to make recommendations to the Board regarding any issues
requiring Board consideration with respect to the transaction.
As part of that process, the Board and the Special Committee
consulted with our officers with respect to strategic and
operational matters. The Board and the Special Committee also
consulted with Freeman regarding financial matters and Dewey
Ballantine LLP and Bingham McCutchen LLP regarding legal
matters, including the Investment Agreement and related
documents. The determination was the result of careful
consideration by the Board and the Special Committee of a number
of factors, including the following positive factors:
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The Private Placement will provide significant additional
funding, which is important because the continued operation of
our business is costly and capital intensive and our current
capital resources are limited.
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If the Private Placement is not completed, we may be forced to
preserve our cash position through a combination of additional
cost reduction measures and sales of assets at values that may
be significantly below their potential worth or augment our cash
through additional dilutive financings, and there can be no
assurance that we could obtain funds on terms that are as
favorable to us as the terms of the Private Placement or at all.
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The Company will have reduced cash compensation expenses by
reducing the amount of cash bonuses compared to past practices
in light of the issuance of restricted stock units to key
employees and is expected to have savings resulting from
reductions in back office personnel and related costs.
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The current market process has led to no other investors
and/or
acquirers after the initial due diligence process. Please see a
more detailed description of the current market process in the
sections entitled Background of the Private
Placement on page 30 and Opinion of Our
Independent Financial Advisor on page 37.
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Our prior market check process only led to verbal indications of
interest for transactions that we believe are less favorable to
our shareholders than the Private Placement and the Board
believes that, with the severe risks of further key employee
turnover combined with the absence of any written or formal
current offers at this previous market check level, the
MatlinPatterson deal is financially attractive. Please see a
more detailed description of the previous market check in the
sections entitled Background of the Private
Placement on page 30 and Opinion of Our
Independent Financial Advisor on page 37.
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The Private Placement will strengthen our financial condition
and reduce our financial risk, which the Board believes will:
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reassure our employees of our continued viability and long-term
prospects as a place to work;
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improve our ability to raise additional funding through debt or
equity financings on favorable terms; and
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make our common stock more attractive to prospective investors
for purchase on the open market and for use as an acquisition
currency.
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The Board believes the 2007 Plan will further and promote the
interests of the Company and its shareholders by enabling the
Company and its subsidiaries to attract, retain and motivate
employees and officers or those
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who will become employees or officers of the Company, to link
compensation to measures of the Companys performance in
order to provide additional incentives and to align the
interests of those individuals and the Companys
shareholders.
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The Board believes the Private Placement will strengthen our
investor base with the addition of a new experienced investor
who will have a significant stake in our long-term success and
will be motivated to provide the support and assistance to
protect and enhance its investment.
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We believe we will strengthen our Board with the addition of new
directors who have significant experience in advising comparable
companies.
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The Private Placement will assist us in our efforts to maintain
our listing on the NASDAQ Global Market by augmenting our
shareholders equity.
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The securities issued in the Private Placement will be shares of
common stock rather than debt or preferred stock, which will
place the new investors at the same rank as the existing
shareholders and allow us to maintain a less complicated capital
structure.
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We received the opinion of Freeman that the consideration to be
received by us in the Private Placement is fair to us from a
financial point of view. Please see the section entitled
Opinion of Our Independent Financial Advisor on
page 37 for further information.
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In contrast to a sale of the Company, the Private Placement will
permit the existing shareholders to continue to own shares of
our common stock thereby giving them the opportunity to share in
any increase in value that we are able to create following the
infusion of new capital.
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In its review of the Private Placement, the Board also
considered a number of potentially negative factors, including
the following factors:
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the risks and uncertainties of our ability to execute our
strategic plan and to enhance shareholder value;
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the Private Placement will have a highly dilutive effect on our
current shareholders and option holders;
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the interests of MatlinPatterson as a controlling shareholder
may conflict with your interests. MatlinPatterson is currently
expected to control between 70% and 75% (between 60% and 65% on
a fully diluted basis), based on the number of shares of common
stock outstanding on June 25, 2007 and after giving effect
to an increase in the number of Purchased Shares that may result
from the adjustment provision of the Investment Agreement and
which may further increase the number of Purchased Shares, of
the voting power of our outstanding common stock and will
exercise a controlling influence over our business and affairs
and will have the power to determine matters submitted to a vote
of our shareholders, such as the election of directors and
approval of significant corporate transactions, including the
approval of the Special Meeting Proposals;
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MatlinPatterson has required us either to modify or seek
shareholder approval to modify certain measures that we had
previously adopted, including our shareholder rights agreement
and certain provisions of our Certificate of Incorporation;
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sale of the Purchased Shares in the public market pursuant to
registration statements that we would be obligated to file on up
to three occasions and maintain effective if requested to do so
by MatlinPatterson under the Registration Rights Agreement could
have a material adverse affect on the market price of our common
stock;
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the completion of the Private Placement is conditioned upon the
receipt of material consents and approvals of third parties and
self-regulatory organizations which could delay or prevent the
completion of the Private Placement; and
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the Private Placement will likely limit the Companys use
of its net operating loss carryforwards.
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The Board conducted an overall analysis of the Private Placement
in which it weighed the benefits and advantages against the
risks and negative factors described above. The Board did not
view any of the factors as
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determinative or assign any rank or relative weight to the
factors. Throughout the process, the Board continued to consider
alternatives to the Private Placement, including alternate
financing structures, the sale of the Company or its merger with
another entity, and the liquidation of the Company. The Board
recognized that there can be no assurance that we would be able
to achieve all or significantly all of each anticipated benefit
or advantage or that it had identified and accurately assessed
each risk and negative factor. However the Board concluded that
the potential benefits and advantages of the Private Placement
significantly outweighed the risks and negative factors.
After taking into account these and other factors, the Board
unanimously determined that the Private Placement was fair to
and in the best interests of the Company and its shareholders
and approved the issuance and sale of the Purchased Shares to
MatlinPatterson.
Opinion
of Our Independent Financial Advisor
Our Board of Directors retained Freeman to render an opinion as
to whether the consideration to be received by the Company in
the Private Placement is fair to the Company from a financial
point of view. The opinion, which we sometimes refer to in this
proxy statement as the Fairness Opinion, was
prepared at the request of our Board of Directors and the
Special Committee to assist them in evaluating the Private
Placement. The Fairness Opinion of Freeman does not constitute a
recommendation as to how any security holder should vote at the
annual meeting. The full text of Freemans written opinion,
dated May 14, 2007, is attached to this proxy statement as
Appendix B and this summary is qualified in its
entirety by reference to the full text of the opinion. You are
encouraged to read the Fairness Opinion carefully in its
entirety for a description of the assumptions made, matters
considered and limitations on the review undertaken.
At the May 13, 2007 meeting of our Board of Directors,
Freeman presented its analysis and verbally rendered to our
Board its opinion that, based on and subject to the matters
described in the Fairness Opinion, the consideration to be
received by the Company in the Private Placement is fair to the
Company from a financial point of view. Freeman issued its
written opinion on May 14, 2007 in connection with the
execution of the Investment Agreement.
No limitations were imposed upon Freeman by our Board with
respect to the investigations made or procedures followed by
Freeman in rendering its opinion. Freeman has not been requested
and does not intend to update, revise or reaffirm its Fairness
Opinion, including, but not limited to, to reflect any
circumstances or events that have occurred since May 14,
2007. You should understand that the Fairness Opinion speaks
only as of its date. Events that could affect the fairness of
the consideration received by the Company in the Private
Placement from a financial point of view include adverse changes
in industry performance or changes in market conditions and
changes to our business, financial condition and results of
operations.
Freeman made such reviews, analyses and inquiries as it deemed
necessary to assess the fairness, from a financial point of
view, of the consideration to be received by the Company in the
Private Placement. In arriving at its Fairness Opinion, Freeman
reviewed and considered such financial and other matters as it
deemed relevant, including, among other things:
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the Investment Agreement and the financial terms of the
transactions contemplated thereby;
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certain publicly available information for the Company and
certain other relevant financial and operating data furnished to
Freeman by the management of the Company;
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certain internal financial analysis, financial forecasts,
reports and other information concerning the Company, prepared
by the management of the Company;
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discussions Freeman had with certain members of the management
of the Company concerning the historical and current business
operations, financial conditions and prospects of the Company
and such other matters Freeman deemed relevant;
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certain operating results, the reported price
and/or
trading histories of the shares of the common stock of the
Company as compared to operating results, the reported price and
trading histories of certain publicly traded companies Freeman
deemed relevant;
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certain financial terms of the transaction contemplated by the
Investment Agreement as compared to the financial terms of
certain selected business combinations Freeman deemed relevant;
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certain pro forma financial effects of the transaction
contemplated by the Investment Agreement on an
accretion/dilution basis including pro forma operating cost
reductions; and
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such other information, financial studies, analyses and
investigations and such other factors that Freeman deemed
relevant for the purposes of its opinion.
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No material relationship existed between Freeman and us or our
affiliates, none has since developed and none is mutually
understood to be contemplated, other than our engagement of
Freeman in the spring of 2006 to establish a comprehensive
process to entertain both a strategic sale of, or strategic
investment in, the Company, to advise us on the previously
announced sale of our Municipal Capital Markets Group in the
DEPFA Transaction, and the May 10, 2007 engagement with
respect to delivery of the Fairness Opinion. Freeman received a
$100,000 retainer in conjunction with the engagement in the
spring of 2006 which was paid in 2006. This 2006 retainer will
be subtracted from a fee of $1,125,000 which is payable to
Freeman only upon the closing of the DEPFA Transaction. Freeman
was not separately compensated for the delivery of a fairness
opinion in connection with the DEPFA Transaction. Freeman will
be paid $250,000 for the delivery of the Fairness Opinion to the
Board in respect of the Private Placement. Freeman, as part of
its investment banking business, is continually engaged in the
valuation of businesses and their securities in connection with
mergers and acquisitions, private placements and valuations for
corporate and other purposes. None of the fees paid to Freeman
are contingent upon the adoption of the Private Placement.
Freeman used several methodologies to assess the fairness of the
consideration to be received by the Company in connection with
the Private Placement. The following is a summary of the
material financial analyses undertaken by Freeman in connection
with providing its Fairness Opinion. This summary is qualified
in its entirety by reference to the full text of the Fairness
Opinion.
Freemans analyses of the Company were performed on a
current situational analysis, an analysis of the MatlinPatterson
discount, and a post-Private Placement potential analysis. The
current situational analysis considered the Companys
operating pre-tax earnings for the past fifteen consecutive
quarters and included an analysis of the Companys tangible
book value and stock price based upon the prices at which the
Companys common stock was trading on the NASDAQ Global
Market. The current situational analysis also considered the
Companys operating losses, investment portfolio gains,
capitalization of fixed income businesses and key employee
turnover.
The analysis of the MatlinPatterson discount considered the
discounted stock price at which the Purchased Shares will be
sold to MatlinPatterson in relation to the closing trading
prices of the Companys common stock and discounts given in
similar private investment in public equity transactions
(sometimes referred to herein as PIPE transactions
or PIPEs).
The post-Private Placement potential analysis calculated the
Companys pro forma tangible book value based on the
investment by MatlinPatterson and compared it to current trading
multiples of publicly-traded broker-dealers similar to the
Company. The post-Private Placement analysis gave consideration
to the matters contemplated by the Investment Agreement and
Registration Rights Agreement, including the contemplated
immediate infusion of approximately $50 million of
additional capital (net of certain fees and expenses) from the
Private Placement and the contemplated dilutive impact of shares
to be issued in connection with the Private Placement.
Current
Situational Analysis of the Company
Analysis of Specific Performance Factors. As
part of its current situational analysis of the Company, Freeman
considered the following factors:
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As of the end of the first quarter of 2007, the Company had
sustained fifteen consecutive quarterly operating losses
calculated based on the Companys pre-tax earnings and
adding back any investment portfolio gains or losses. These
consistent losses from operations have led to drastically
reduced tangible book value and stock price. At the end of the
third quarter of 2003, the Company had a tangible book value
(calculated as the sum of stockholders equity and
temporary capital less intangible assets) of $78.1 million
which declined 61.3% to $30.3 million as of the end of the
first quarter of 2007.
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The Companys stock price at the end of the third quarter
of 2003 was $11.63 per share which eroded 86.2% to $1.60 as of
the end of the first quarter of 2007. Freeman also considered
that the percentage erosion of the Companys stock price in
excess of the percentage erosion of the Companys tangible
book value reflected a negative market outlook regarding the
Companys performance.
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In six of the last fifteen fiscal quarters, operating losses
were largely funded from investment portfolio gains but going
forward the Companys balance sheet no longer had
investments with unrealized gains to fund the operating losses
and thus by this measure the Company had an outlook with greater
potential risk.
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The Companys fixed income businesses remain
undercapitalized relative to current institutional sales
opportunities identified by the direct management of those
businesses and relative to historic levels at Descap Securities
Inc., the Companys mortgage-backed security/asset-backed
security trading subsidiary
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Key employee turnover in early 2007 included the loss of certain
key employees in the Companys capital markets business. In
February and March 2007, the Company lost five senior employees
in the Companys Alternative Energy, Industrial Growth,
Clean Technology and Medical Devices groups. The head of equity
trading for the technology sector also departed the Company.
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MatlinPatterson Transaction Analysis. Based on
the Investment Agreement that contemplates a $50 million
capital infusion into First Albany at $1.50 per share, Freeman
determined that MatlinPattersons ownership position on a
pro forma basis would be 59.9% on a primary basis or 58.4% on a
fully diluted basis. Both pro forma ownership estimates were
calculated after taking into consideration the grants of
6.0 million restricted shares by MatlinPatterson to key
executives and personnel. The number of restricted stock units
was later increased to 6.75 million. Please see
Proposal No. 2 Approval of the Private
Placement above for a discussion of MatlinPattersons
undiluted and fully-diluted voting interest taking into account
the additional 750,000 restricted stock units.
Analysis
of MatlinPatterson Discount
Freeman reviewed the closing trading prices of the
Companys common stock over a thirty day period ending
May 11, 2007 and determined that MatlinPattersons
$1.50 per share investment ranged from 3.8% to 13.8% of a
discount to market price. Based on the closing price of the
Companys common stock on May 11, 2007 (the last
business day prior to announcement of the Private Placement) of
$1.60, the per share investment price of $1.50 represented a
6.25% discount. Freeman noted that the investment by
MatlinPatterson, atypically for a speculative transaction of
this nature, proposes no additional warrants or preferred stock
which could further dilute existing shareholders.
Freeman analyzed PIPE transactions of a similar nature over a
trailing twelve-month period and divided the transactions into
three segments based on structure: unregistered common stock,
PIPEs with warrants and registered direct placements. Freeman
noted that the majority of these transactions did not involve a
change of control.
Unregistered Common Stock. This segment
represents the traditional PIPE structure where investors are
granted unregistered securities that must become registered in a
90-120 day
period. For the trailing twelve-month period, Freeman reviewed
fifty-four completed transactions and calculated their mean
discount to be 14.2% below the target stock price on the last
trading day prior to sale.
PIPEs with Warrants. This segment represents
the PIPE transaction structure used for more speculative
investments. Freeman viewed this as the most relevant segment
when comparing the current MatlinPatterson investment. For the
trailing twelve-month period, there were 136 transactions
completed with a calculated mean discount of 18.3% from the last
sale price of the targets stock, excluding any implied
discount from the issue of warrants in connection with each
transaction.
Registered Direct Placements. This segment
represents transactions used largely for bulletin board growth
stocks where the investor is granted registered common stock
that is able to be traded immediately. Over the trailing
twelve-month period, thirty-nine transactions had an average
discount of 8.4% from the target stock price on the last trading
day prior to sale.
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Post-Private
Placement Analysis of the Company
As a result of the cash infusion from the Private Placement,
Freeman calculated that the Company will have a pro forma
tangible book value of $1.40 per share based on pro forma
financials ending in the second quarter of 2007. The second
quarter 2007 pro forma financials prior to the proposed Private
Placement showed tangible shareholders equity of
$27.4 million with 16,371,000 shares outstanding with
the proposed Private Placement increasing shareholders equity to
$77.4 million and increasing shares outstanding to
55,329,000. These numbers were calculated taking into account
the issuance of 33,333,333 shares of common stock to
MatlinPatterson for $50 million and approximately
6.0 million restricted stock units to be issued to certain
key employees in connection with the Private Placement, as was
contemplated at the May 11, 2007 Special Committee meeting.
The number of restricted stock units was later increased to
6.75 million. Please see the section entitled
Proposal No. 2 Approval of the Private
Placement above for a discussion of MatlinPattersons
undiluted and fully-diluted voting interest taking into account
the addition 750,000 restricted stock units. Based on a
potential trading range established from the current trading
multiples of publicly traded broker-dealers, Freeman determined
that the tangible book value multiple could range from a high of
3.1 and a low of 1.7, resulting in potential post-Private
Placement per share prices ranging from a high of $4.34 to a low
of $2.38. Notwithstanding the above analysis that was conducted
by Freeman as a small subset of its overall analysis in
determining its Fairness Opinion, Freeman specifically expressed
no view as to the price or trading range for shares of the
common stock of the Company following the consummation of the
Private Placement.
Conclusion
Based on the analyses described above (which should be read in
conjunction with the full text of the Fairness Opinion), and
with consideration to the various assumptions and limitations
set forth in the Fairness Opinion, Freeman determined that, as
of the date of the Fairness Opinion, the consideration to be
received by the Company in connection with the Private Placement
is fair to the Company from a financial point of view.
In conducting its review and arriving at its opinion, Freeman,
with the Companys consent, assumed and relied, without
independent investigation, upon the accuracy and completeness of
all financial and other information provided by the Company or
which is publicly available. While Freeman did meet with the
management of the Company to review and discuss the analyses and
forecasts provided by management, Freemans assumption as
to the accuracy and completeness of such analyses and forecasts
was based on contractual provisions in its engagement letter
with the Company, pursuant to which Freeman was entitled to rely
upon the accuracy and completeness of all information furnished
by the Company. In addition, Freeman did not conduct nor assume
any obligation to conduct any physical inspection of the
properties or facilities of the Company. Freeman relied upon the
assurance of the management of the Company that it was unaware
of any facts that would make the information provided to Freeman
incomplete or misleading in any respect. Freeman, with the
Companys consent, assumed that the financial forecasts
which they examined were reasonably prepared by the management
of the Company on the basis reflecting the best currently
available estimates and good faith judgments of management as to
the future performance of the Company. The Board reviewed the
financial forecasts prepared by the Company and posed questions
regarding their accuracy and completeness at the May 13,
2007 Board meeting, and, based on its review, the Board
determined that Freemans reliance upon the forecasts was
reasonable at that time.
Freeman did not make or obtain any independent evaluations,
valuations or appraisals of the assets or liabilities of the
Company, nor was it furnished with such materials. With respect
to all legal matters relating to the Company, Freeman relied on
the advice of legal counsel to the Company. Freemans
services to the Company in connection with the transaction
contemplated by the Investment Agreement have been to bring both
potential investors and acquirers to the Company, assist
management in those negotiations and render an opinion from a
financial point of view with respect to the consideration
offered in the Private Placement. Freemans opinion is
necessarily based upon economic and market conditions and other
circumstances as they existed on May 14, 2007. It should be
understood that although subsequent developments may affect
Freemans opinion, Freeman does not have any obligation to
update, revise or reaffirm its opinion and expressly disclaims
any responsibility to do so.
For purposes of rendering its opinion Freeman assumed in all
respects material to its analysis that the representations and
warranties of each party contained in the Investment Agreement
were true and correct, that each
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party will perform all of the covenants and agreements required
to be performed by it under the Investment Agreement and that
all conditions to the consummation of the transaction
contemplated in the Investment Agreement will be satisfied
without waiver thereof. Freeman also assumed that all
governmental, regulatory and other consents and approvals
contemplated by the Investment Agreement will be obtained and
that in the course of obtaining those consents and approvals no
restrictions will be imposed or waivers made that would have an
adverse effect on the contemplated benefits of the Private
Placement.
Freemans opinion does not constitute a recommendation to
any shareholder of the Company to take any action in connection
with the transactions contemplated by the Investment Agreement
or otherwise. Freeman has not been requested to opine as to, and
its opinion does not in any manner address, the Companys
underlying business decision to effect the transactions
contemplated by the Investment Agreement. Furthermore, Freeman
expressed no view, and specifically currently expresses no view,
as to the price or trading range for shares of the common stock
of the Company following the consummation of the transactions
contemplated by the Investment Agreement.
Financial
Projections
The Company does not as a matter of course make public
projections as to future performance or earnings and is
especially wary of making projections for extended earnings
periods due to the unpredictability of the underlying
assumptions and estimates. However, senior management did
provide financial forecasts to MatlinPatterson in April of 2007
in connection with their consideration of a possible transaction
with the Company. These projections were also provided to our
Board and to Freeman. We have included a subset of these
projections in this proxy statement to give our shareholders
access to certain nonpublic information deemed material by our
Board for purposes of considering and evaluating the Private
Placement. The inclusion of these projections should not be
regarded as an indication that management, our Board,
MatlinPatterson, Freeman, or any other recipient of this
information considered, or now considers, these projections to
be a reliable prediction of future results, and they should not
be relied on as such. In addition, as we have only included a
subset of the projections in this proxy statement, you are
cautioned not to rely on this information as complete in making
a decision whether to vote in favor of the Private Placement.
We believe the assumptions the Companys management used as
a basis for the projections were reasonable at the time the
projections were prepared, given the information the
Companys management had at the time. However, the
projections do not take into account any circumstances or events
occurring after the date they were prepared and you should not
assume that the projections will continue to be accurate or
reflective of the Companys managements view at the
time you consider whether to vote for the Private Placement. The
Company advised the recipients of the projections that its
internal financial forecasts, upon which the projections were
based, are subjective in many respects and thus susceptible to
various interpretations.
The projections reflect numerous estimates and assumptions with
respect to industry performance, general business, economic,
regulatory, market and financial conditions and other matters,
including assumed effective interest rates and effective tax
rates consistent with the Companys historical levels, all
of which are difficult to predict and many of which are beyond
the Companys control. The projections are also subject to
significant uncertainties in connection with changes to the
Companys business and its financial condition and results
of operation. In addition, the projections reflect projected
information without regard to the Investment Agreement with
MatlinPatterson, which may cause actual results to materially
differ as well. As a result, there can be no assurance that the
projected results will be realized or that actual results will
not be significantly higher or lower than those contained in the
projections; it is expected that there will be differences
between actual and projected results. Since the projections
cover multiple years, such information by its nature becomes
less reliable with each successive year.
The financial projections were prepared for internal use and for
our Board, to assist MatlinPatterson with their due diligence
investigations of the Company and for use by Freeman in its
financial analysis and not with a view toward public disclosure
or toward complying with United States generally accepted
accounting principles, the published guidelines of the SEC
regarding projections or the guidelines established by the
American Institute of Certified Public Accountants for
preparation and presentation of prospective financial
information. The Companys independent registered public
accounting firm has not examined or compiled any of the
financial projections,
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expressed any conclusion or provided any form of assurance with
respect to the financial projections and, accordingly, assumes
no responsibility for them.
Readers of this proxy statement are cautioned not to place undue
reliance on the specific portions of the financial projections
set forth below. No one has made or makes any representation to
any person regarding the validity, reasonableness, accuracy or
completeness of the information included in these projections or
the ultimate performance of the Company compared to such
information.
For the foregoing reasons, as well as the bases and assumptions
on which the financial projections were compiled, the inclusion
of specific portions of the financial projections in this proxy
statement should not be regarded as an indication that such
projections will be an accurate prediction of future events, and
they should not be relied on as such. Except as required by
applicable securities laws, the Company does not intend to
update, or otherwise revise the financial projections or the
specific portions presented to reflect circumstances existing
after the date when made or to reflect the occurrence of future
events, even in the event that any or all of the assumptions are
shown to be in error.
42
FIRST
ALBANY COMPANIES INC.
SUMMARY
CONSOLIDATED FINANCIAL DATA
($000s)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 2008 Forecast
|
|
|
|
2004A
|
|
|
2005A
|
|
|
2006A
|
|
|
|
Q1 07 A
|
|
|
Q2 07 F
|
|
|
Q3 07 F
|
|
|
Q4 07 F
|
|
|
|
2007 F
|
|
|
2008 F
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions
|
|
|
19,757
|
|
|
|
17,429
|
|
|
|
11,798
|
|
|
|
|
1,753
|
|
|
|
1,688
|
|
|
|
2,111
|
|
|
|
2,145
|
|
|
|
|
7,696
|
|
|
|
10,229
|
|
Principal Transactions
|
|
|
69,581
|
|
|
|
58,447
|
|
|
|
63,709
|
|
|
|
|
10,278
|
|
|
|
12,323
|
|
|
|
9,364
|
|
|
|
9,755
|
|
|
|
|
41,721
|
|
|
|
53,871
|
|
Investment Banking
|
|
|
42,563
|
|
|
|
48,115
|
|
|
|
47,418
|
|
|
|
|
7,590
|
|
|
|
12,990
|
|
|
|
3,550
|
|
|
|
8,000
|
|
|
|
|
32,130
|
|
|
|
35,000
|
|
Investment Gains (Losses)
|
|
|
10,070
|
|
|
|
21,592
|
|
|
|
(7,602
|
)
|
|
|
|
239
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
248
|
|
|
|
|
|
Interest
|
|
|
9,249
|
|
|
|
14,301
|
|
|
|
13,500
|
|
|
|
|
3,241
|
|
|
|
3,277
|
|
|
|
3,828
|
|
|
|
3,832
|
|
|
|
|
14,178
|
|
|
|
35,329
|
|
Fees and Other
|
|
|
1,939
|
|
|
|
3,392
|
|
|
|
1,872
|
|
|
|
|
455
|
|
|
|
270
|
|
|
|
530
|
|
|
|
730
|
|
|
|
|
1,984
|
|
|
|
4,085
|
|
Total Revenue
|
|
|
153,159
|
|
|
|
163,276
|
|
|
|
130,695
|
|
|
|
|
23,557
|
|
|
|
30,550
|
|
|
|
19,386
|
|
|
|
24,465
|
|
|
|
|
97,958
|
|
|
|
138,515
|
|
Interest Expense
|
|
|
(5,202
|
)
|
|
|
(11,745
|
)
|
|
|
(15,904
|
)
|
|
|
|
(3,755
|
)
|
|
|
(3,628
|
)
|
|
|
(3,830
|
)
|
|
|
(3,830
|
)
|
|
|
|
(15,043
|
)
|
|
|
(33,982
|
)
|
Net Revenues
|
|
|
147,958
|
|
|
|
151,532
|
|
|
|
114,791
|
|
|
|
|
19,801
|
|
|
|
26,922
|
|
|
|
15,556
|
|
|
|
20,636
|
|
|
|
|
82,915
|
|
|
|
104,533
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and Benefits
|
|
|
110,416
|
|
|
|
101,488
|
|
|
|
103,627
|
|
|
|
|
14,997
|
|
|
|
19,672
|
|
|
|
11,007
|
|
|
|
12,712
|
|
|
|
|
58,388
|
|
|
|
56,439
|
|
Clearing Settlement &
Brokerage
|
|
|
6,427
|
|
|
|
10,963
|
|
|
|
6,313
|
|
|
|
|
1,298
|
|
|
|
1,217
|
|
|
|
1,145
|
|
|
|
1,031
|
|
|
|
|
4,692
|
|
|
|
5,688
|
|
Communication and Data Proc
|
|
|
12,180
|
|
|
|
10,430
|
|
|
|
11,760
|
|
|
|
|
2,867
|
|
|
|
2,944
|
|
|
|
2,455
|
|
|
|
2,459
|
|
|
|
|
10,725
|
|
|
|
9,548
|
|
Occupancy & Depreciation
|
|
|
9,002
|
|
|
|
10,792
|
|
|
|
11,224
|
|
|
|
|
2,063
|
|
|
|
2,272
|
|
|
|
1,401
|
|
|
|
1,401
|
|
|
|
|
7,137
|
|
|
|
5,984
|
|
Selling
|
|
|
6,111
|
|
|
|
4,733
|
|
|
|
5,000
|
|
|
|
|
1,218
|
|
|
|
949
|
|
|
|
703
|
|
|
|
703
|
|
|
|
|
3,573
|
|
|
|
3,521
|
|
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,244
|
|
|
|
3,244
|
|
|
|
|
6,488
|
|
|
|
1,622
|
|
Other
|
|
|
14,162
|
|
|
|
7,422
|
|
|
|
8,249
|
|
|
|
|
1,687
|
|
|
|
1,702
|
|
|
|
1,032
|
|
|
|
1,072
|
|
|
|
|
5,492
|
|
|
|
6,041
|
|
Total Expenses
|
|
|
158,297
|
|
|
|
145,829
|
|
|
|
146,173
|
|
|
|
|
24,130
|
|
|
|
28,756
|
|
|
|
20,987
|
|
|
|
22,622
|
|
|
|
|
96,494
|
|
|
|
88,843
|
|
Pre-Tax Contribution
|
|
|
(10,339
|
)
|
|
|
5,703
|
|
|
|
(31,382
|
)
|
|
|
|
(4,329
|
)
|
|
|
(1,834
|
)
|
|
|
(5,431
|
)
|
|
|
(1,986
|
)
|
|
|
|
(13,579
|
)
|
|
|
15,690
|
|
The following were the material assumptions made by the
Company in connection with the preparation of the financial
projections:
1. The sale of the Municipal Capital Markets Division of
the Company to DEPFA would be completed as of June 30,
2007. Does not reflect potential gain on sale related to the
DEPFA Transaction of between $7 million and $8 million.
2. The Companys equities business would return to
historical performance levels.
3. The Companys Descap Securities Inc. subsidiary
would experience improvement in the market environment in the
second half of 2007.
4. The projections included an estimated charge to reduce
administration expenses relative to the size of the
Companys business going forward.
5. Historical results are from continuing operations.
6. Results for Q4 06 exclude an impairment charge of
$7.9 million related to the write-down of an intangible
asset.
43
Summary
of Terms of the Private Placement
Investment
Agreement
The following summarizes material provisions of the
Investment Agreement which is attached in Appendix A
to this document and is incorporated by reference herein.
The rights and obligations of the parties are governed by the
express terms and conditions of the Investment Agreement and not
by this summary or any other information contained in this proxy
statement. First Albany shareholders are urged to read the
Investment Agreement carefully and in its entirety as well as
this document before deciding how to vote their shares on the
Proposals. The Investment Agreement has been attached to this
document to provide First Albany shareholders with information
regarding its terms. The assertions embodied in the
representations and warranties contained in the Investment
Agreement (and summarized below) are qualified by information in
confidential disclosure schedules provided by First Albany to
MatlinPatterson in connection with the signing of the Investment
Agreement. The Company and MatlinPatterson do not consider the
information contained in the disclosure schedules to be
information that is required to be disclosed pursuant to the
federal securities laws. These disclosure schedules contain
information that modifies, qualifies and creates exceptions to
the representations and warranties set forth in the Investment
Agreement. Moreover, certain representations and warranties in
the Investment Agreement were used for the purpose of allocating
risk between First Albany and MatlinPatterson rather than
establishing matters as facts. Accordingly, you should not rely
on the representations and warranties in the Investment
Agreement (or the summaries contained herein) as
characterizations of the actual state of facts about First
Albany because they are modified by such disclosure
schedules.
Purchase
and Sale of Stock
The Company will issue and sell, and MatlinPatterson will
purchase, 33,333,333 shares of the common stock of the
Company, subject to potential upward adjustment as described
below (the Purchased Shares). The purchase price for
the Purchased Shares will be equal to $50 million, less
certain reimbursable expenses as described below.
If the DEPFA Transaction has not been consummated prior to the
Private Placement closing date, the number of Purchased Shares
will be increased to account for the cash bonuses or other
amounts paid or payable by the Company to any employee of its
Municipal Capital Markets Group as a result of the Private
Placement closing prior to the closing of the DEPFA Transaction,
as well as any restricted stock awards and employee stock
options held by employees of the Municipal Capital Markets Group
that become vested as a result of the closing of the Private
Placement and that would not have become so vested had the DEPFA
Transaction closed prior to the Private Placement closing date.
Pursuant to this adjustment mechanism, the number of Purchased
Shares will be increased by multiplying the number of Purchased
Shares that would otherwise be issuable by a fraction that is
determined by (i) dividing the aggregate amount of Excess
Compensation resulting from the failure of the DEPFA Transaction
to close prior to the closing of the Private Placement by the
number of shares of common stock outstanding as of the closing
date, (ii) expressing such amount as a fraction of $1.50
and (iii) adding such fraction to one. Excess
Compensation is in effect defined as the amount of
incremental bonuses or other cash amounts paid or payable by the
Company to or in respect of the employees of the Municipal
Capital Markets Group as a result of the closing of the Private
Placement taking place prior to the closing of the DEPFA
Transaction plus the number of shares of restricted stock
awarded to such employees that become vested as a result of the
closing of the Private Placement multiplied by $1.50 per share
plus the number of shares issuable upon the exercise of
any stock options held by such employees with an exercise price
of less than $1.50 per share that become vested as a result of
the closing of the Private Placement multiplied by the
difference between $1.50 and such exercise price. In the event
that the DEPFA Transaction closes after the closing of the
Private Placement, as of the closing of the Private Placement,
the employees of the Municipal Capital Markets Group would
become entitled to Excess Compensation of approximately
$2,429,696, in the aggregate. To the extent that such employees
do not waive their rights to receive such Excess Compensation,
the adjustment formula set forth in the Investment Agreement
would result in an increase in the number of Purchased Shares.
In addition, if the Net Tangible Book Value Per Share (as
defined in the Investment Agreement, including adjustments to
eliminate any effects of a prior closing of the DEPFA
Transaction on tangible net book value) is less than $1.60 as of
the Private Placement closing date, the number of Purchased
Shares will be increased by multiplying the number of Purchased
Shares that would otherwise be issuable by a fraction that is
determined by (i) expressing the difference between $1.50
and 88.86% of the Net Tangible Book Value Per Share as of the
Private Placement closing date as a fraction of $1.50 and
(ii) adding that fraction to one.
44
We currently expect that as of the closing of the Private
Placement, MatlinPatterson will own between 37,000,000 and
47,000,000 shares, representing between 70% and 75% of the
outstanding common stock (between 60% and 65% on a fully diluted
basis) based on the number of shares of common stock outstanding
on June 25, 2007 and after giving effect to the adjustment
provisions described above which may further increase the number
of Purchased Shares.
Closing
of the Purchase and Sale of Stock
Unless the parties agree otherwise, the closing of the Private
Placement will take place on a date specified by the parties,
but no later than the second business day following the day on
which the last of the closing conditions have been satisfied or
waived, at the offices of Sidley Austin LLP, 787 Seventh Avenue,
23rd Floor, New York, New York 10019.
We currently expect to complete the Private Placement by the end
of the third quarter of 2007, subject to receipt of required
shareholder and regulatory approvals and satisfaction of the
other conditions to closing.
Closing
Conditions
MatlinPattersons obligation to purchase the shares in the
Private Placement is subject to the satisfaction or waiver of
the following conditions:
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|
|
|
|
there being in effect no order by any court or governmental
authority having jurisdiction over any of the parties that
prohibits, invalidates or seeks to restrain consummation of any
of the transactions contemplated in the Investment Agreement;
|
|
|
|
the adoption of the Investment Proposals set forth in this proxy
statement by a majority of the shareholders of the Company;
|
|
|
|
the receipt of all material governmental and self regulatory
organization approvals required for consummation of the
transactions contemplated in the Investment Agreement;
|
|
|
|
the receipt of all material contractual consents required for
consummation of the transactions contemplated in the Investment
Agreement;
|
|
|
|
the performance by the Company all of its covenants and
agreements contained in the Investment Agreement in all material
respects;
|
|
|
|
the Companys representations and warranties contained in
the Investment Agreement being true and correct in all material
respects;
|
|
|
|
the receipt of non-competition and non-solicitation covenants
from at least 22 of 27 key employees of the Company designated
by MatlinPatterson (which condition has already been met), as
well as their continuing employment by the Company as of the
closing;
|
|
|
|
the number of other employees of the Company whose employment is
terminated in the period between May 14, 2007 and the
closing date does not exceed by more than 20% the number of
employees whose employment was terminated in the comparable
period in 2006 or the six-month period ending on May 14,
2007, whichever is greater;
|
|
|
|
there have not occurred any changes or events that have had or
would reasonably be expected to have a material adverse effect
on the Company, as defined in the Investment Agreement; and
|
|
|
|
the receipt of a certificate of an executive officer of the
Company stating that certain of the preceding conditions have
been satisfied.
|
First Albanys obligation to issue and sell the Purchased
Shares to MatlinPatterson in the Private Placement is subject to
the to the satisfaction or waiver of the following conditions:
|
|
|
|
|
there being in effect no order by any court or governmental
authority having jurisdiction over any of the parties that
prohibits, invalidates or seeks to restrain consummation of the
transactions contemplated in the Investment Agreement;
|
|
|
|
the adoption of the Investment Proposals set forth in this proxy
statement by a majority of the shareholders of the Company;
|
45
|
|
|
|
|
the receipt of all material governmental and self regulatory
organization approvals required for consummation of the
transactions contemplated in the Investment Agreement;
|
|
|
|
the performance by MatlinPatterson all of its covenants and
agreements contained in the Investment Agreement in all material
respects;
|
|
|
|
MatlinPattersons representations and warranties contained
in the Investment Agreement being true and correct in all
material respects;
|
|
|
|
the receipt of a certificate of a senior executive of
MatlinPatterson stating that certain of the preceding conditions
have been satisfied; and
|
|
|
|
if the closing occurs on or prior to July 31, 2007, the
DEPFA Transaction shall have been consummated.
|
No
Solicitation
The Investment Agreement provides that the Company shall not
authorize or permit any of its officers, trustees, directors,
employees, agents or representatives to directly or indirectly:
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|
|
|
|
initiate, solicit or knowingly encourage or facilitate any
inquiries or the making of any proposal or offer that
constitutes, or would reasonably be expected to result in, a
competing transaction (as defined below); or
|
|
|
|
enter into discussions or negotiations with, or provide any
confidential information or data to, any person relating to a
competing transaction.
|
The Company has also agreed to take all actions reasonably
necessary to cause its officers, trustees, directors, employees,
agents or representatives to immediately cease any discussions
or negotiations with any other person with respect to, or that
would reasonably be expected to lead to, a competing transaction.
Further, the Company has agreed to notify MatlinPatterson of any
proposal which the Company receives relating to a competing
transaction and to keep MatlinPatterson informed on a timely
basis of the status and any material developments regarding such
proposal.
However, if the Company receives a bona fide proposal for a
competing transaction that the Board believes in good faith,
after consultation with outside counsel and with the
Companys financial advisors, constitutes or may reasonably
be expected to result in a superior competing transaction (as
defined below), and which was not the result of a breach of the
no solicitation provisions in the Investment Agreement, the
Board may, to the extent required by its fiduciary obligations:
|
|
|
|
|
contact such person making the proposal for the purpose of
clarifying the proposal, any material terms and the capability
of consummation so as to determine whether the proposal is
reasonably likely to lead to a superior competing
transaction; and
|
|
|
|
if the Board determines in good faith following consultation
with its legal and financial advisors that such proposal is
reasonably likely to lead to a superior competing transaction,
the Board may:
|
|
|
|
|
|
furnish such person non-public information about the Company and
its subsidiaries pursuant to an appropriate confidentiality
agreement;
|
|
|
|
participate in negotiations and discussions with such person
regarding its proposal; and
|
|
|
|
subject to the requirements set forth below with respect to a
change in Board recommendation and prior to shareholder approval
of the Private Placement, terminate the Investment Agreement.
|
In addition, the Company agreed that the Board will not change
its recommendation in favor of the Private Placement or
terminate the Investment Agreement as provided above unless the
Board has:
|
|
|
|
|
given MatlinPatterson at least three business days notice of its
intent to take such action; and
|
|
|
|
negotiated with MatlinPatterson in good faith to amend the
Investment Agreement and the competing transaction remains a
superior competing transaction.
|
A competing transaction is defined in the Investment
Agreement as:
|
|
|
|
|
any merger, reorganization, consolidation, share exchange,
business combination, liquidation, dissolution, recapitalization
or similar transaction involving the Company;
|
46
|
|
|
|
|
any direct or indirect acquisition or purchase of 20% or more of
the consolidated gross assets of the Company and its
subsidiaries, taken as a whole, 20% or more of any class of
voting securities of the Company or any subsidiary, or 15% or
more of any class of voting securities of the Company or any
subsidiary if such securities carry the right to appoint or
designate any member of the Board; or
|
|
|
|
any tender offer or exchange offer that, if consummated, would
result in any person or group beneficially owning 20% or more of
any class of voting securities of the Company.
|
A superior competing transaction is defined in the
Investment Agreement as bona fide proposal for a competing
transaction made by a third party which was not, directly or
indirectly, the result of a breach of the no solicitation
provisions set forth in the Investment Agreement:
|
|
|
|
|
on terms the Board determines in its good faith judgment, based
on the financial analysis and advice of the Companys
financial advisors and the advice of outside counsel, after
giving effect to the payment of reimbursable expenses to
MatlinPatterson pursuant to the Investment Agreement and to the
expected timing of the closing of the proposed competing
transaction, to be more favorable to the shareholders of the
Company than the transactions contemplated by the Investment
Agreement, including any alternative proposed by MatlinPatterson
in accordance with the Investment Agreement;
|
|
|
|
which is reasonably likely to be consummated; and
|
|
|
|
for which financing, to the extent required, is then fully
committed or which in the good faith judgment of the Board,
based on the advice of the Companys financial advisors, is
reasonably capable of being timely financed by such third party.
|
Termination
of Obligations under Investment Agreement
The Investment Agreement may be terminated by the Company and
MatlinPatterson by mutual consent. It also may be terminated by
either MatlinPatterson or the Company if any permanent order,
decree, ruling or other action of a court or other competent
authority permanently restraining, enjoining or otherwise
preventing the consummation of any of the transactions
contemplated in the Investment Agreement, has become final and
non-appealable, or the closing has not occurred before
September 30, 2007.
MatlinPatterson may terminate the Investment Agreement if there
is a material breach of any of the Companys
representations or warranties, if there is a material breach of
any of the Companys covenants or agreements that has not
been cured within ten business days, or the Board accepts,
approves or authorizes a superior competing transaction.
The Company may terminate the Investment Agreement if there is a
material breach of any of MatlinPattersons representations
or warranties, there is a material breach of any of
MatlinPattersons covenants or agreements that has not been
cured within ten business days, or, after the Company has paid
certain reimbursable expenses to MatlinPatterson, if the
Companys Board accepts, approves or authorizes a superior
competing transaction. Other than the reimbursement of such
expenses, the Company has no obligation to pay a
break-up
fee to MatlinPatterson if the Board accepts, approves or
authorizes such a superior competing transaction.
Indemnification
The Company has agreed to indemnify MatlinPatterson against
breaches of the Companys representations, warranties and
covenants contained in the Investment Agreement and the
Registration Rights Agreement. MatlinPatterson may not seek
indemnification until its aggregate claims exceed $3,000,000,
whereupon MatlinPatterson will be entitled to seek
indemnification with respect to all damages incurred by it. The
Companys aggregate liability for breaches of its
representations, warranties and covenants shall not exceed
$17,500,000. Generally, claims for breaches of Company
representations, warranties and covenants must be brought by
April 30, 2009.
Conduct
of Business
The Company generally covenants to operate its business in the
ordinary course of business, to use commercially reasonable
efforts to keep available the services of its current officers
and employees, and to preserve the goodwill of its customers,
suppliers, licensors, lessors, third-party payors and others
having business relations with the Company.
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The Investment Agreement also includes certain negative
covenants covering actions that the Company agrees not to take
without MatlinPattersons prior written consent, including
amending the Companys certificate of incorporation or
bylaws, issuing or encumbering the Companys capital stock,
declaring or paying dividends, entering into any acquisitions of
businesses or sales of certain assets, incurring indebtedness,
entering into any reorganization or recapitalization, changing
its accounting principles, making certain capital expenditures,
settling or compromising certain liabilities, preparing or
filing certain tax returns or taking any action giving rise to
tax liability, amending certain Company contracts, violating any
legal requirements, terminating certain key employees,
increasing compensation or making certain changes in employee
benefits.
Other
Covenants and Agreements
The Company covenants to cause the number of directors on the
Board to be increased to nine and to procure the resignation of
each of the directors not continuing to be members of the Board
following consummation of the Private Placement and to, on the
closing date of the Private Placement, to cause the remaining
members of the Board to appoint the directors appointed by
MatlinPatterson to fill the resulting vacancies.
The Company and MatlinPatterson agree to cooperate in developing
a new strategic plan designed to restore the Company to
profitability and to provide a platform for future growth.
The Company and MatlinPatterson covenant to refrain from taking
any actions which would render any representation or warranty in
the Investment Agreement inaccurate. Each party is to reasonably
notify the other of any event or matter that would reasonably be
expected to cause any of its representations or warranties to be
untrue in any material respect or any action, suit or proceeding
that shall be instituted or threatened against any such party to
restrain, prohibit or otherwise challenge the legality of any of
the transactions contemplated under the Investment Agreement.
The Company and MatlinPatterson agree to use their reasonable
best efforts to cause each of the closing conditions described
above to be satisfied as soon as practicable.
The Company agrees to notify MatlinPatterson of any Company
material adverse effect, any lawsuit, claim or proceeding
threatened or commenced against the Company or any subsidiary or
any of their officers, directors or employees, any notice or
communication with a third person alleging the consent of such
third person is required in connection with the transactions
contemplated by the Investment Agreement, any material default
under certain of the Companys contracts or any event which
would become a material default on or prior to the Private
Placement closing date, and any notice from any governmental
authority in connection with or relating to any of the
transactions contemplated by the Investment Agreement.
The Company and MatlinPatterson agree to cooperate fully with
each other and assist each other in defending any lawsuits or
other legal proceedings brought against either party challenging
the Investment Agreement or the Registration Rights Agreement or
the consummation of the transactions contemplated by the
Investment Agreement.
The Company covenants to act diligently and reasonably, and
MatlinPatterson agrees to cooperate, in order to obtain all
Company contractual consents required in connection with the
Private Placement, provided that neither party is to have any
obligation to offer or pay any consideration in order to obtain
such consents, and provided further that the Company may not
make any agreement affecting the Company or any of its
subsidiaries or any of their respective businesses as a
condition for obtaining such consents without
MatlinPattersons prior written consent.
The Company and MatlinPatterson agree to cooperate and use
commercially reasonable efforts to obtain all necessary
approvals from any governmental authority, self regulatory
organization (including the National Association of Securities
Dealers), and stock exchange of which the Company or any
subsidiary is a member in connection with the transactions
contemplated by the Investment Agreement or to otherwise satisfy
the closing conditions described above, provided that neither
the Company nor MatlinPatterson is obligated to execute
settlements or other similar agreements, sell or otherwise
convey any particular assets or businesses of the Company or
MatlinPatterson or otherwise take actions that after the Private
Placement closing date would limit the freedom of action the
Company or its subsidiaries or MatlinPatterson with respect to
one or more of its or their businesses, product lines or assets,
in order to avoid the entry of or effect the dissolution of any
order in any suit or proceeding that would otherwise have the
effect of preventing or materially delaying the closing.
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The net proceeds received by the Company from the issuance of
the Purchased Shares are to be used in a manner consistent with
the new strategic plan to be developed by the Company and
MatlinPatterson.
Representations
and Warranties
The Investment Agreement contains representations and
warranties, many of which are qualified by materiality, made by
each party to the other. The Company has made representations
and warranties relating to, among other topics, the following:
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organization and qualification;
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capitalization;
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subsidiaries and joint ventures;
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authorization and enforceability of the Investment Agreement;
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consents and approvals;
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filings with the SEC and financial statements;
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legal and regulatory compliance;
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absence of material changes in our business, operations,
financial condition or results of operations;
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litigation;
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ownership of assets;
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our intellectual property;
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insurance;
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employee benefits;
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tax matters;
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rights to registration under the Securities Act;
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application of takeover protection; and
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disclosure and conduct of the Private Placement.
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In addition, MatlinPatterson has made representations and
warranties relating to, among other topics, the following:
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organization, standing and power;
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authorization and enforceability of the Investment Agreement;
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consents and approvals;
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investment experience;
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disclosure of information;
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availability of funds;
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accuracy of information supplied or to be supplied for inclusion
in any document to be filed with the SEC or any governmental
authority to be filed in connection with the Private
Placement; and
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tax matters.
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The representations described above and included in the
Investment Agreement were made for purposes of the Investment
Agreement and are subject to qualifications and limitations
agreed by the respective parties in connection with negotiating
the terms of the Investment Agreement. In addition, certain
representations and warranties were made as of a specific date,
may be subject to a contractual standard of materiality
different from what might be viewed as material to shareholders,
or may have been used for purposes of allocating risk between
the respective parties rather than establishing matters as
facts. This description of the representations and warranties,
and their reproduction in the copy of the Investment Agreement
attached to this proxy statement as Appendix A, are
included solely to provide shareholders with information
regarding the terms of the Investment Agreement. Accordingly,
the representations and warranties and other provisions of the
Investment Agreement should not be
49
read alone, but instead should be read together with the
information provided elsewhere in this proxy statement and in
the documents incorporated by reference into this proxy
statement. The majority of the representations and warranties
will survive until April 30, 2009.
Registration
Rights Agreement
The following summary of the provisions of the Registration
Rights Agreement is qualified in its entirety by the full text
of the form of Registration Rights Agreement included in
Appendix A and incorporated by reference herein.
We agreed to enter into a Registration Rights Agreement with
MatlinPatterson at the closing of the Private Placement pursuant
to which we would be required upon the demand of MatlinPatterson
on up to three occasions to file with the SEC a registration
statement for the resale of Purchased Shares. The Registration
Rights Agreement obligates us to use our best efforts to have
the registration statement declared effective as soon as
practicable after it is filed and to maintain its effectiveness
for up to 270 days (or three years, if the registration
statement is a shelf registration statement).
The Registration Rights Agreement also provides MatlinPatterson
with piggyback registration rights exercisable if we were to
file certain registration statements on our own initiative or
upon the request of another shareholder.
We would bear all of the costs of any registration other than
underwriting discounts and commissions and certain other
expenses.
The Registration Rights Agreement contains customary
indemnification provisions that obligate us to indemnify and
hold harmless MatlinPatterson, its controlling persons and their
officers, directors, partners and employees and any underwriter
for losses caused by (i) any untrue statement of material
fact or omission of a material fact in the registration
statement or any prospectus included therein, (ii) the
violation by us of the Securities Act or the Exchange Act, or
any rule or regulation thereunder relating to our acts or
omissions in connection with the registration statement.
The Registration Rights Agreement also contains other customary
terms found in such agreements, including provisions concerning
registration procedures.
Voting
Agreements
The following summary of the provisions of the Voting Agreements
is qualified in its entirety by the full text of the Voting
Agreements included in Appendix A and incorporated
by reference herein.
MatlinPatterson has entered into certain voting agreements with
Messrs. Alan Goldberg, George McNamee and Peter McNierney,
individually. Pursuant to the Voting Agreements, such
shareholders, who beneficially own in the aggregate
3,120,148 shares of common stock, which represents
approximately 19% of the shares of common stock deemed to be
outstanding pursuant to
Rule 13d-3(d)(1)
under the Exchange Act and approximately 19% of the currently
outstanding voting power of the Company, have agreed, among
other things (i) to vote their shares of common stock
(a) in favor of the Private Placement and the Investment
Proposals, (ii) not to solicit, encourage or recommend to
other shareholders of the Company that they vote their shares of
common stock in any contrary manner, that they refrain from
voting their shares, that they tender, exchange or otherwise
dispose of their shares of common stock pursuant to a
Competing Transaction (as defined in the Voting
Agreements), or that they attempt to exercise any statutory
appraisal or other similar rights they may have,
(iii) unless otherwise instructed in writing by
MatlinPatterson, to vote their shares against any Competing
Transaction and (iv) not to, and not to permit any of their
employees, attorneys, accountants, investment bankers or other
agents or representatives to, initiate, solicit, negotiate,
encourage, or provide confidential information in order to
facilitate any Competing Transaction. The Voting Agreements
expire at the earlier of: (i) the closing of the Private
Placement, (ii) the due and proper termination of the
Investment Agreement in accordance with its terms, or
(iii) the mutual consent of MatlinPatterson and each of
Messrs. Goldberg, McNamee and McNierney.
The purpose of the Voting Agreements is to increase the
likelihood that the Private Placement and the Investment
Proposals will be approved by the shareholders of the Company at
the annual meeting.
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Amendment
of the Rights Agreement
The following summary of the provisions of the Amendment of the
Rights Agreement is qualified in its entirety by the full text
of the Amendment of the Rights Agreement included in
Appendix A and incorporated by reference herein.
As of May 14, 2007, we entered into an amendment to the
Rights Amendment with our transfer agent, American Stock
Transfer & Trust Company, designed to provide for
a fair and equal treatment for all shareholders in the event
that an unsolicited attempt is made to acquire us.
The rights provided under the Rights Agreement are exercisable
only if a person or group (an Acquiring Person, as
defined in the Rights Agreement) acquires 15% or more of our
common stock or announces a tender offer for 15% or more of our
common stock. If an Acquiring Person acquires 15% or more of our
common stock, all holders of such rights except the Acquiring
Person will be entitled to acquire our common stock at a
discount. The effect is to discourage acquisitions of more than
15% of our common stock without negotiations with the Board.
MatlinPatterson will beneficially own more than 15% of our
outstanding common stock following the closing of the Private
Placement. We agreed with MatlinPatterson in the Investment
Agreement that we would amend the Rights Agreement to provide
(i) that entry into the Investment Agreement and the
Private Placement would be exempt from the Rights Agreement and
(ii) neither MatlinPatterson FA Acquisition LLC (together
with its affiliates and associations) or any group in which it
is a member will be deemed to be an Acquiring
Person. We entered into an amendment to Rights Agreement
(the Amendment of the Rights Agreement) with
American Stock Transfer & Trust Company as of
May 14, 2007 to effect the required amendments. As a
consequence, neither the issuance of the Purchased Shares to
MatlinPatterson nor the acquisition by MatlinPatterson or any
related person referred to above of any additional shares of our
common stock will cause the rights issued under the Rights
Agreement to become exercisable. The continued effectiveness of
this amendment is a condition to MatlinPattersons
obligations to purchase the Purchased Shares at the closing of
the Private Placement.
Under the Rights Agreement, we have the express authority to
amend the Rights Agreement without shareholder approval.
Accordingly, no shareholder action was required to amend the
Rights Agreement.
Notice
and Waiver Letter Agreement
On July 25, 2007, we entered into a Notice and Waiver
Letter Agreement with DEPFA (the DEPFA Waiver).
Pursuant to the DEPFA Waiver, DEPFA agreed to waive the
condition to closing the DEPFA Transaction requiring that we
present a management proposal at the annual meeting to amend our
Certificate of Incorporation to change our corporate name to a
name that does not include the words First Albany or
FA or any derivatives thereof (the Charter
Amendment). Under the terms of the DEPFA Waiver, we agreed
to use commercially reasonable efforts to hold a special meeting
of shareholders to approve the Charter Amendment (the
Special Meeting) prior to or (if necessary)
following the closing of the DEPFA Transaction, including
following the closing of the Private Placement. The DEPFA Waiver
also provides that we and DEPFA will enter into a license
agreement (the License Agreement) to allow us
limited continued use of the name First Albany in
the event the DEPFA Transaction closes before the Charter
Amendment is approved at the Special Meeting. If the Charter
Amendment is not effected within sixty days following the
closing of the DEPFA Transaction, then the Company will pay
DEPFA an annual royalty fee of $50,000 under the terms of the
License Agreement.
We currently intend to hold the Special Meeting following the
closing of the Private Placement and expect that, if the
Investment Proposals are approved by our shareholders and the
Private Placement is completed, MatlinPatterson will be a record
holder of our common stock entitled to vote at the Special
Meeting. As a condition to the DEPFA Waiver, DEPFA entered into
a voting agreement with MatlinPatterson effective as of
June 29, 2007 pursuant to which MatlinPatterson agreed to
vote its shares of common stock at the Special Meeting in favor
of the Charter Amendment. We currently expect that the
shareholder proposal regarding the Charter Amendment (the
Charter Amendment Proposal) to be presented at the
Special Meeting will provide that the name of the Company will
be changed to Broadpoint Securities Group, Inc. MatlinPatterson
has also indicated its intention to vote its shares in favor of
a management proposal we intend to present to our shareholders
at the Special Meeting to amend the Certificate of Incorporation
of the Company to permit our shareholders to act by less than
unanimous written consent (the Consent Proposal and,
together with the Charter Amendment Proposal, the Special
Meeting Proposals). Following the approval of the Consent
Proposal at the Special Meeting, if MatlinPatterson is the
holder
51
of a majority of our outstanding common stock, it would be able
to take unilateral action by written consent without a
shareholder meeting for those actions requiring majority
shareholder approval until such time as its ownership interest
decreases to fifty percent (50%) or less. If the Investment
Proposals are approved by our shareholders and the Private
Placement is completed, and we hold the Special Meeting
following the closing of the Private Placement when
MatlinPatterson is a record holder of our common stock, as we
currently intend, MatlinPatterson will have the power acting
alone to determine the outcome of the Special Meeting Proposals
and they will be approved at the Special Meeting.
The DEPFA Waiver, the License Agreement and the voting agreement
between DEPFA and MatlinPatterson are filed as exhibits to the
Companys current report on
Form 8-K
filed with the SEC on July 31, 2007.
Interest
of Certain Persons in the Private Placement
Certain members of our Board and certain of our executive
officers, in their capacities as such, have certain interests in
the Private Placement that are in addition to or different from
their interests as First Albany shareholders generally. The
Board was aware of these actual and potential conflicts of
interest and considered them, among other matters, in approving
the Investment Agreement and the transactions contemplated
thereby and in recommending that shareholders vote in favor of
the Investment Proposals. As a result of these interests, these
directors and executive officers may be more likely to support
and to vote to approve the Investment Proposals than if they did
not have these interests. Shareholders should consider whether
these interests may have influenced those directors and
executive officers to support or recommend approval of the
Investment Proposals. These interests are described below. As of
the close of business on the record date for the annual meeting,
our directors and executive officers and their affiliates were
entitled to vote approximately 3,291,863 shares of common
stock, representing approximately 21% of the common stock
entitled to vote on the Investment Proposals.
If the Private Placement is completed, the Company will become
obligated to issue restricted stock units in respect of an
aggregate of up to 6,750,000 shares of common stock to
certain key employees who enter into non-compete and non-solicit
agreements with the Company and pursuant to the Companys
employment agreements with Mr. Fensterstock and
Mr. McNierney. The restricted stock units would vest over a
three-year period following issuance.
Change
in Control Provisions in Employment Agreements
The Company is a party to employment agreements with Peter
McNierney, dated June 30, 2006, and with Brian Coad, dated
June 30, 2006, as described in the section entitled
McNierney and Coad Agreements on
page 88. These employment agreements provide that the
employee will have Good Reason to terminate his
employment if certain adverse actions are taken by Company with
respect to such employee, as described in the sections entitled
McNierney Agreement or Coad
Agreement, respectively, on page 88. Actions
constituting good reason include the assignment to the employee
of any duties materially inconsistent with his position
(including status, offices, titles or reporting relationships);
however, Mr. McNierney and Mr. Coad will not have Good
Reason under this provision if, after a change of control they
continue serving, respectively, as the senior most executive
officer or senior-most financial officer of the Company and its
subsidiaries as conducted immediately prior to the change of
control. If Good Reason exists for termination,
Mr. McNierney and Mr. Coad, as the case may be, would
receive severance payments as described in the sections entitled
McNierney Agreement or Coad
Agreement, respectively, on page 88. In the event
of change in control of the Company, if compensation payments to
Mr. McNierney or Mr. Coad become subject to excise tax
under Section 4999 of the Code, the Company will pay such
executive a gross up payment in an amount equal to
the amount of the excise tax imposed on such compensation
payments.
On May 14, 2007, the Company entered into a new employment
agreement with Mr. McNierney (the New McNierney
Employment Agreement). This agreement, should it become
effective, would supersede in most respects the employment
agreement between the Company and Mr. McNierney entered
into on June 30, 2006 (the Prior Agreement).
The New McNierney Employment Agreement is made as of, and will
become effective only upon, the closing of the Private
Placement. On that date, the Prior Agreement will terminate,
with limited exceptions. The New McNierney Employment Agreement
provides that the Company will employ Mr. McNierney as its
President and Chief Operating Officer for a three-year term
commencing on the closing of the Private Placement.
Mr. McNierney would be entitled to receive an annual base
salary of $300,000 and to participate in the
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Companys annual bonus pool. Mr. McNierney would also
be entitled to an initial grant of restricted stock units in
respect of 600,000 shares of common stock, to be made upon
closing of the Private Placement, and to subsequent grants of
restricted stock units in respect of up to 500,000 shares
of common stock, to be made over a period commencing on
June 30, 2008 and ending January 1, 2010. The grant of
restricted stock units made upon the closing of the Private
Placement will be 10% vested as of such closing, and will vest
an additional 30% on each of the first, second and third
anniversaries of the closing. Upon termination of employment,
whether voluntary or involuntary, Mr. McNierney would be
entitled to a cash severance payment equal to $1.8 million
less the market value of the common stock underlying any
restricted stock units granted to him that have vested as of the
date of termination of his employment with the Company or upon
the expiration of the agreement. Upon expiration or termination
of employment, whether voluntary or involuntary,
Mr. McNierney would be entitled to a cash severance payment
equal to $1.8 million less the aggregate market value of
any granted restricted stock units that have vested as of the
termination date. He would also be entitled to other additional
payments upon termination of employment, the amount of which
depends upon the circumstances of termination. In particular, in
the event of his termination from the Company Without
Cause he would also receive his base salary for twelve
(12) months following termination, a prorated bonus for the
fiscal year in which the twelve (12) month base salary
continuation period ends, continuation health coverage paid by
the Company for twelve (12) months following termination,
any earned but unpaid bonus and, if he executes a release
agreement (which will include an
18-month
restrictive covenant), continued vesting in accordance with the
schedule provided in the agreement of any restricted stock units
granted to him prior to termination. If Mr. McNierney
terminates his employment without Good Reason, he
will be entitled to any unpaid base salary and unpaid benefits
and any earned but unpaid bonus. If Mr. McNierney
terminates his employment for Good Reason, he will be entitled
to any unpaid base salary and unpaid benefits, any earned but
unpaid bonus, a pro-rated bonus for the year in which
termination occurs and, if he executes a settlement and release
agreement (which will include an
18-month
restrictive covenant), continued vesting in accordance with the
schedule provided in the agreement of any restricted stock units
granted to him prior to termination. If Mr. McNierney is
terminated by the Company for Cause, he will be
entitled to any unpaid base salary and unpaid benefits and any
earned but unpaid bonus. The New McNierney Employment Agreement
also contains confidentiality, non-solicitation and other
restrictive covenants. Good Reason, for purposes of
the New McNierney Employment Agreement, means: (i) a
failure by Company to perform fully the terms of the agreement,
or any plan or agreement referenced in the agreement, other than
an immaterial and inadvertent failure not occurring in bad faith
and remedied by Company promptly (but not later than five days)
after receiving notice thereof from Mr. McNierney;
(ii) any reduction in Mr. McNierneys base salary
or failure to pay any bonuses or other material amounts due
under the agreement; (iii) the assignment to
Mr. McNierney of any duties inconsistent in any material
respect with his position or with his authority, duties or
responsibilities as President and Chief Operating Officer, or
any other action by Company which results in a diminution in
such position, authority, duties or responsibilities, or
reporting relationship, excluding for this purpose any
immaterial and inadvertent action not taken in bad faith and
remedied by Company promptly (but not later than ten
(10) days after receiving notice from Executive);
(iv) any change in the place of Mr. McNierneys
principal place of employment to a location outside New York
City; or (v) any failure by Company to obtain an assumption
and agreement to perform the agreement by a successor.
Cause, for purposes of the New McNierney Employment
Agreement, means: (i) Mr. McNierneys conviction
of, or plea of guilty or no contest to, any felony;
(ii) Mr. McNierneys conviction of, or plea of
guilty or no contest to, a violation of criminal law
involving the Company and its business;
(iii) Mr. McNierneys commission of an act of
fraud or theft, or material dishonesty in connection with his
performance of duties to Company; or
(iv) Mr. McNierneys willful refusal or gross
neglect to perform the duties reasonably assigned to him and
consistent with his position with Company or otherwise to comply
with the material terms of the agreement, which refusal or gross
neglect continues for more than fifteen days after
Mr. McNierney receives written notice thereof from the
Company providing reasonable detail of the asserted refusal or
gross neglect (and which is not due to a physical or mental
impairment).
The Company entered into a consulting agreement with Lee
Fensterstock which will commence on July 1, 2007 and will
end on the earlier of (i) the occurrence of the closing
contemplated by the Investment Agreement; (ii) termination
of the Investment Agreement or (iii) September 30,
2007, during which Mr. Fensterstock will serve as a
financial consultant to the Company. Mr. Fensterstock shall
have an office at the New York City headquarters of the Company
that is satisfactory to Mr. Fensterstock and
Mr. Fensterstock shall spend substantially all of his time
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providing the Financial Consulting Services. During the term of
the agreement, Mr. Fensterstock will earn a consulting fee
of $30,000 for each calendar month.
The Company also expects to enter into an employment agreement
with Mr. Fensterstock (the Fensterstock Employment
Agreement) to be effective at the closing of the Private
Placement. The Fensterstock Employment Agreement provides that
the Company shall employ Mr. Fensterstock as its Chief
Executive Officer and Chairman of the Board for a three-year
term commencing on the closing date of the Private Placement,
automatically extended for one additional year upon the third
anniversary of the effective date without any affirmative
action, unless either party to the agreement provides at least
six (6) months advance written notice to the other
party that the employment period will not be extended. Upon the
effective date of the agreement, Mr. Fensterstock will be
entitled to receive an annual base salary of $350,000 and to
participate in the Companys annual bonus pool (the bonus
for the fiscal year that begins prior to the first anniversary
of the effective date shall be pro-rated to correspond to the
portion of such fiscal year that follows the first anniversary
of the effective date). Mr. Fensterstock will also be
entitled to an initial grant of restricted stock units in
respect of 1,000,000 shares of common stock, to be made
upon closing of the Private Placement, and to subsequent grants
of restricted stock units in respect of up to
1,000,000 shares of common stock, to be made over a period
commencing on June 30, 2008 and ending January 1,
2010. The grant of restricted stock units made upon the closing
of the Private Placement will be 10% vested as of such closing,
and will vest an additional 30% on each of the first, second and
third anniversaries of the closing.
The Fensterstock Employment Agreement provides that upon
termination of employment, Mr. Fensterstock will be
entitled to certain payments or benefits, the amount of which
depends upon the circumstances of termination. In particular, in
the event of his termination from the Company Without
Cause he will also receive his base salary for twelve
months following termination; a prorated bonus for the fiscal
year in which the
twelve-month
base salary continuation period ends; continuation health
coverage paid by the Company for twelve months following
termination; any earned but unpaid bonus; and, if he executes a
settlement and release agreement (which will include an
18-month
restrictive covenant), continued vesting in accordance with the
schedule provided in the agreement of any restricted stock units
granted to him prior to termination. If Mr. Fensterstock
terminates employment without Good Reason he will be
entitled to any unpaid base salary and unpaid benefits and his
earned but unpaid bonus. If Mr. Fensterstock terminates
employment for Good Reason, but not because of a
Change of Control, he will be entitled to any unpaid
base salary and unpaid benefits; any earned but unpaid bonus; a
pro-rated bonus for the year in which termination occurs; and,
if he executes a settlement and release agreement (which will
include an
18-month
restrictive covenant), continued vesting in accordance with the
schedule provided in the agreement of any restricted stock units
granted to him prior to termination. If Mr. Fensterstock is
terminated by the Company for Cause, he will be
entitled to any unpaid base salary and unpaid benefits and his
earned but unpaid bonus. If Mr. Fensterstock terminates
employment with the Company for Good Reason, because
a Change of Control occurs and Mr. Fensterstock
does not continue thereafter as the most senior executive
officer of the business of the Company as conducted immediately
prior to the Change of Control, Mr. Fensterstock shall be
entitled to any unpaid base salary and unpaid benefits, any
earned but unpaid bonus, a pro-rated bonus for the year in which
termination occurs. In addition, all restricted stock units
granted to Mr. Fensterstock prior to the termination of his
employment shall immediately vest upon termination; and
restricted stock units specified in the Fensterstock Employment
Agreement that have not yet been granted to
Mr. Fensterstock, including without limitation all shares
the grant of which is otherwise contingent on achieving certain
performance targets, shall be granted to Mr. Fensterstock
on the date of his termination and shall immediately vest upon
such date.
The Fensterstock Employment Agreement also contains
confidentiality, non-solicitation and other restrictive
covenants. Change of Control means a transaction or
event as a result of which MatlinPatterson Global Opportunities
Partners II, L.P. (and/or one or more of its affiliates) shall
no longer have the right to elect all the members of the Board.
Good Reason, for purposes of the Fensterstock
Employment Agreement, means: (i) a failure by Company to
perform fully the terms of the Fensterstock Employment
Agreement, or any plan or agreement referenced in such
agreement, other than an immaterial and inadvertent failure not
occurring in bad faith and remedied by Company promptly (but not
later than five (5) days) after receiving notice thereof
from Mr. Fensterstock ; (ii) any reduction in
Mr. Fensterstock s base salary or failure to pay any
bonuses or other material amounts due under the agreement;
(iii) the assignment to Mr. Fensterstock of any duties
inconsistent in any material respect with his position or with
his authority, duties or responsibilities as Chief Executive
Officer and Chairman of the Board, or any other action by
Company which results in a diminution in such position,
authority,
54
duties or responsibilities, or reporting relationship, excluding
for this purpose any immaterial and inadvertent action not taken
in bad faith and remedied by Company promptly (but not later
than ten (10) days after receiving notice from Executive);
(iv) any change in the place of Mr. Fensterstock
s principal place of employment to a location outside New
York City; (v) any failure by Company to obtain an
assumption and agreement to perform the agreement by a
successor; or (vi) a Change of Control occurs
and Mr. Fensterstock does not continue thereafter as the
most senior executive officer of the business of the Company as
conducted immediately prior to the Change of Control.
Cause, for purposes of the Fensterstock Employment
Agreement, means: (i) Mr. Fensterstock s
conviction of, or plea of guilty or no contest to,
any felony; (ii) Mr. Fensterstock s conviction
of, or plea of guilty or no contest to, a violation
of criminal law involving the Company and its business;
(iii) Mr. Fensterstock s commission of an act of
fraud or theft, or material dishonesty in connection with his
performance of duties to Company; or
(iv) Mr. Fensterstock s willful refusal or gross
neglect to perform the duties reasonably assigned to him and
consistent with his position with Company or otherwise to comply
with the material terms of the agreement, which refusal or gross
neglect continues for more than fifteen (15) days after
Mr. Fensterstock receives written notice thereof from the
Company providing reasonable detail of the asserted refusal or
gross neglect (and which is not due to a physical or mental
impairment).
In connection with the Private Placement, Mr. Coad, the
Companys Chief Financial Officer, executed a Non-Compete
and Non-Solicit Agreement in favor of the Company. This
agreement will take effect only if the Private Placement is
consummated. In consideration of this agreement, Mr. Coad
will be awarded restricted stock units in respect of
200,000 shares of common stock. This grant is also
contingent on closing of the Private Placement. In connection
with the foregoing, the Company agreed to pay Mr. Coad a
lump-sum, cash severance payment under certain circumstances.
Specifically, in the event that as a result of action by the
Company Mr. Coad no longer serves as the Companys
Chief Financial Officer, or is assigned duties that are
materially inconsistent with the position of Chief Financial
Officer or that constitute a diminution of Mr. Coads
authority, duties or responsibilities as Chief Financial
Officer, Mr. Coad may at his election resign from his
employment with the Company and receive upon termination a
severance payment. The amount of the severance payment would be
$525,000 less the market value of the common stock underlying
any previous restricted stock units granted to Mr. Coad
that have vested as of the date of termination of his employment
with the Company.
Continued
Service on the Board of Directors
Mr. McNamee and Mr. McNierney are expected to continue
as members of the Board immediately following the Private
Placement. The Board shall be increased from seven to nine
members following the Private Placement and the four new
directors shall be Mr. Fensterstock and three
representatives of MatlinPatterson and its affiliates. In
addition, it is currently expected that Nicholas A.
Gravante, Jr., Dale Kutnick and Carl Carlucci will continue
as members of the Board following the closing of the Private
Placement until asked to resign by MatlinPatterson in accordance
with the terms of the Investment Agreement. At such time the
remaining directors will fill the resulting vacancies with
directors designated by MatlinPatterson.
Vesting
of Equity Incentive Plans
Under both the 1999 Long Term Incentive Plan and 2001 Long Term
Incentive Plan (referred to collectively herein as the
Long Term Incentive Plans), if a Change of Control
occurs (i) all stock options then unexercised and
outstanding will become fully vested and exercisable and
(ii) all restrictions, terms and conditions applicable to
restricted shares then outstanding will be deemed lapsed and
satisfied, each as of the date of the Change of Control. The
definition of Change in Control as in these plans is
described in the section entitled The 1999 Long Term
Incentive Plan and the 2001 Long Term Incentive Plan
on page 89.
Under the 2003 Non-Employee Directors Stock Plan, if a Change of
Control occurs (i) all stock options then unexercised and
outstanding will become fully vested and exercisable and
(ii) all restrictions, terms and conditions applicable to
restricted shares then outstanding will be deemed lapsed and
satisfied, each as of the date of the Change of Control. The
definition of Change in Control in this plan is
defined in the section entitled Director Compensation
for Fiscal Year 2006 on page 75.
As of the record date, there were approximately
3,332 shares underlying outstanding unvested options
granted to directors and executive officers under the Long Term
Incentive Plans. As of the record date, there were approximately
138,839 restricted shares outstanding under the Long Term
Incentive Plans to directors and
55
executive officers. The following table identifies, for each
director and executive officer, the aggregate number of common
shares subject to outstanding unvested options that will become
vested in connection with the completion of the Private
Placement and the weighted average exercise price and value of
such unvested options. The information assumes that all options
remain outstanding on the closing date of the Private Placement.
The following table also identifies, for each of the First
Albany directors and executive officers, the aggregate number of
restricted shares whose restrictions will lapse in connection
with the completion of the Private Placement. The information
assumes that all restricted shares remain outstanding on the
closing date of the Private Placement.
|
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|
|
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|
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|
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|
Weighted
|
|
|
|
|
|
|
|
|
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|
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Number of
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Average
|
|
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|
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Number of
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|
|
|
|
Shares
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Exercise
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Gain on Options
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Restricted Shares
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Underlying
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Price of
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Vesting upon
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Vesting upon
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Value of Vested
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Unvested
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Unvested
|
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Private
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Private
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Restricted
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Name
|
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Options
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Options
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Placement(1)
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|
Placement
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Shares(2)
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Executive
Officers/Directors
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|
|
|
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|
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George C. McNamee
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0
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$
|
0.00
|
|
|
|
0
|
|
|
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2,196
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$
|
3,008.52
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Alan P. Goldberg
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0
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$
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0.00
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0
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3,660
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$
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5,014.20
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Peter J. McNierney
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|
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0
|
|
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$
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0.00
|
|
|
|
0
|
|
|
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110,000
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|
|
$
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150,700.00
|
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Brian Coad
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|
|
0
|
|
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$
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0.00
|
|
|
|
0
|
|
|
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21,885
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|
|
$
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29,982.45
|
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Gordon J. Fox
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|
|
0
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|
|
$
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0.00
|
|
|
|
0
|
|
|
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1,098
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|
|
$
|
1,504.26
|
|
Paul W. Kutey
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|
|
0
|
|
|
$
|
0.00
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
0.00
|
|
Carl P. Carlucci, Ph.D.
|
|
|
833
|
|
|
$
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6.73
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
0.00
|
|
Nicholas A. Gravante, Jr.
|
|
|
833
|
|
|
$
|
6.73
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
0.00
|
|
Shannon P. OBrien
|
|
|
833
|
|
|
$
|
6.73
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
0.00
|
|
Dale Kutnick
|
|
|
833
|
|
|
$
|
6.73
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
(1) |
|
Illustrates the economic value of unvested options that will
become fully vested upon the Private Placement and assumes the
exercise of such options with an estimated $1.37 fair market
value of such shares upon completion of the Private Placement. |
|
|
|
(2) |
|
Illustrates the economic value of shares of restricted stock
whose restrictions shall lapse upon the Private Placement by
multiplying (for each individual) the aggregate number of
restricted stock units by the estimated $1.37 fair market value
of such shares upon completion of the Private Placement. |
Vesting
of Deferred Compensation Plans
Under the 2005 Deferred Compensation Plan for Key Employees, the
2005 Deferred Compensation Plan for Professional and Other
Highly Compensated Employees, the Deferred Compensation Plan for
Key Employees and the Deferred Compensation Plans for
Professional and Other Highly Compensated Employees
(collectively, the 2005 and Predecessor Plans), the
Administrative Committee may provide for accelerated vesting of
amounts credited to any participant under such plans in the
event the participant is terminated without cause (as defined in
the plans) within two years following a Change of Control. The
definition of Change in Control for these plans is
defined in the section entitled The 2005 Plans and the
Predecessor Plans on page 90. The following table
also
56
identifies, for each of the First Albany directors and executive
officers, the aggregate value of amounts that will vest in
connection with the completion of the Private Placement.
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Unvested Amount
|
|
|
|
Vesting upon Private
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Name
|
|
Placement(1)
|
|
|
Executive
Officers/Directors
|
|
|
|
|
George C. McNamee(2)
|
|
$
|
11,281
|
|
Alan P. Goldberg(2)
|
|
$
|
6,158
|
|
Peter J. McNierney
|
|
$
|
0
|
|
Brian Coad
|
|
$
|
0
|
|
Gordon J. Fox
|
|
$
|
0
|
|
Paul W. Kutey
|
|
$
|
0
|
|
Carl P. Carlucci, Ph.D.
|
|
$
|
0
|
|
Nicholas A. Gravante, Jr.
|
|
$
|
0
|
|
Shannon P. OBrien
|
|
$
|
0
|
|
Dale Kutnick
|
|
$
|
0
|
|
|
|
|
(1) |
|
Estimated Amounts. The Company is basing this amount on a per
share price of $1.37, which represents the per share closing
price of the Companys common stock on August 10, 2007. |
|
|
|
(2) |
|
Unvested portion is invested in either the Common Stock
Investment Benchmarks and/or the Interest Rate Index Investment
Benchmark. |
In the event the DEPFA Transaction does not close prior to the
Private Placement, the interests of the directors and officers
in the Private Placement should not be affected. Because the
DEPFA transaction is not anticipated to be a change of control
for the Company, there will be no affect on the change of
control provisions relating to the Private Placement.
No
Appraisal Rights
The shareholders are not entitled to appraisal rights with
respect to the Private Placement, and we will not independently
provide the shareholders with any such rights.
Impact of
the Private Placement on Existing Shareholders
Advantages and Disadvantages
Before voting, each shareholder also should consider the
following advantages and disadvantages of the Private Placement:
Advantages
The Private Placement will provide significant additional
funding, which is important for us to continue operations in
accordance with our current plan and to maintain our listing on
the NASDAQ Global Market. Each shareholder should consider that
the continued operation of our business is costly and capital
intensive and that our current capital resources are limited.
The Company, with a current market capitalization of
$26.6 million as of June 25, 2007, expects to reduce
its cash compensation expenses by reducing the amount of cash
bonuses compared to past practices in light of the issuance of
the restricted stock units to key employees. The Company also
expects savings from reductions in back office personnel and
related costs.
If the Private Placement is not completed, we may be forced to
preserve our cash position through a combination of additional
cost reduction measures and sales of assets at values that may
be significantly below their potential worth or augment our cash
through additional dilutive financings. Should we seek
additional funds to replace the funds that we would have
received from the Private Placement, there can be no assurance
that we could obtain funds on terms that are as favorable to us
as the terms of the Private Placement or at all. Any of the
alternatives to the Private Placement described above may
potentially diminish the value of our common stock and
57
thus your investment in us. Moreover, the current market
process has led to no other investors
and/or
acquirers after the initial due diligence process. Please see a
more detailed description of the current market process in the
sections entitled Background of the Private
Placement on page 30 and Opinion of Our
Independent Financial Advisor on page 37.
The Private Placement will strengthen our financial condition
and reduce our financial risk, which we believe will reassure
our employees of our continued viability and long-term prospects
as a place to work, improve our ability to raise additional
funding through debt or equity financings on favorable terms and
make our common stock more attractive to prospective investors
for purchase on the open market and for use as an acquisition
currency.
We believe the 2007 Plan will further and promote the interests
of the Company and its shareholders by enabling the Company to
attract, retain and motivate employees and officers or those who
will become employees or officers of the Company, to link
compensation to measures of the Companys performance in
order to provide additional incentives and to align the
interests of those individuals and the Companys
shareholders.
We believe the Private Placement will strengthen our investor
base with the addition of a new experienced investor who will
have a significant stake in our long-term success and will be
motivated to provide the support and assistance to protect and
enhance its investment.
The Private Placement will assist us in our efforts to maintain
our listing on the NASDAQ Global Market by augmenting our
shareholders equity.
The securities issued in the Private Placement will be shares of
common stock rather than debt or preferred stock, which will
place the new investors at the same rank as the existing
shareholders and allow us to maintain a less complicated capital
structure.
Our prior market check process only led to verbal indications of
interest for transactions that we believe are less favorable to
shareholders than the Private Placement. We received the opinion
of Freeman that the consideration to be received by us in the
Private Placement is fair to us from a financial point of view.
Please see the market survey discussion in the section entitled
Opinion of Our Independent Financial Advisor on
page 37 for further information.
In contrast to a sale of the Company, the Private Placement will
permit the existing shareholders to continue to own shares of
our common stock thereby giving them the opportunity to share in
any increase in value that we are able to create following the
infusion of funds.
Disadvantages
The Private Placement will have a highly dilutive effect on our
current shareholders and option holders. The aggregate
percentage ownership of our current shareholders will decline
significantly as a result of the Private Placement. The number
of shares issued pursuant to the Private Placement and the
issuance of restricted stock units in respect of up to
6,750,000 shares of common stock to key employees who have
entered into non-compete and non-solicit agreements or
employment agreements with the Company will increase
substantially the number of shares of common stock currently
outstanding. This means that our current shareholders will own a
much smaller interest in our Company as a result of the Private
Placement.
For purposes of example only, a shareholder who owned
approximately 1.0% of our outstanding stock as of May 8,
2007, would own approximately 0.3% of the shares outstanding
immediately after the Private Placement assuming the issuance of
33,333,333 shares of common stock to MatlinPatterson.
Furthermore, MatlinPatterson is currently expected to control
between 70% and 75% (between 60% and 65% on a fully diluted
basis) of the voting power of our capital stock immediately upon
the closing of the Private Placement, based on the number of
shares of common stock outstanding on June 25, 2007, and
after giving effect to an increase in the number of Purchased
Shares that may result from the adjustment provisions of the
Investment Agreement and which may further increase the number
of Purchased Shares. Accordingly, MatlinPatterson will exercise
a controlling influence over our business and affairs and will
have the power to determine matters submitted to a vote of our
shareholders, such as the election of directors and approval of
significant corporate transactions, including the approval of
the Special Meeting Proposals. MatlinPatterson could cause some
corporate actions to be taken even if the interests of
MatlinPatterson conflict with the interests of our other
shareholders. This concentration of voting power could have the
effect of deterring or preventing a change in control of the
Company
58
that might otherwise be beneficial to our shareholders. The
interests of MatlinPatterson as a controlling shareholder may
conflict with your interests.
Also, completion of the Private Placement is conditioned upon,
among other things, the receipt of all material consents and
approvals of certain third parties, including material
contractual consents from landlords, customers and vendors and
certain approvals of governmental authorities and
self-regulatory organizations required for consummation of the
proposed transaction. The need to obtain these consents and
approvals could delay or prevent the completion of the Private
Placement. It cannot be assumed that these consents and
approvals will be obtained, or that their terms, conditions and
timing will not be detrimental to the Company.
All Purchased Shares will be entitled to certain registration
rights. Upon any effective registration of such shares pursuant
to the Registration Rights Agreement, such shares will be freely
transferable without restriction under the Securities Act (but
to the extent that MatlinPatterson remains an affiliate, it will
be subject to the volume limitations of Rule 144 of the
Securities Act and may be subject to the short-swing profit
rules and other restriction under the Exchange Act). Such free
transferability could materially and adversely affect the market
price of our common stock if a sufficient number of such shares
are sold into the market. Even if the Purchased Shares are not
so registered, MatlinPatterson may be eligible to sell some of
the common stock pursuant to SEC Rule 144 commencing one
year after the closing of the Private Placement.
Although our common stock will continue to be quoted on a
securities exchange, we may differ in important respects from
most publicly owned corporations in that our activities could be
controlled by a majority shareholder.
In addition, the Private Placement will limit the Companys
use of its net operating loss carryforwards. As of
December 31, 2006, the Company had approximately
$24.4 million of net operating loss carryforwards for
U.S. federal income tax purposes, which expire between 2023
and 2025. In preparing its financial statements, the Company
must assess the likelihood that its net operating loss
carryforwards will be recovered from future taxable income and,
to the extent that the Company believes that recovery is not
likely, it must establish a valuation allowance. The Company has
recorded a valuation allowance as a result of uncertainties
related to the realization of its net operating loss
carryforwards, at December 31, 2006. The valuation
allowance was established as a result of weighing all positive
and negative evidence, including the Companys history of
cumulative losses over the past three years and the difficulty
of forecasting future taxable income. The valuation allowance
reflects the conclusion of management that it is more likely
than not that the benefit of the net operating loss
carryforwards will not be realized.
Under Section 382 of the Internal Revenue Code, in the
event of an ownership change, subject to certain exceptions, the
amount of pre-ownership-change net operating loss carryforwards
that the company may use to offset future taxable income in any
post-ownership-change taxable year is limited to an amount that
will be determined, in general, by multiplying the fair market
value of the companys outstanding capital stock
immediately prior to the ownership change by the long-term
tax-exempt rate which is published monthly by the Internal
Revenue Service (the Annual Section 382
Limitation). Any unused annual limitation can be carried
forward to subsequent years.
As a result of the Private Placement, the Company will likely
incur such an ownership change which, subject to certain
exceptions, will limit the Companys ability to utilize its
net operating loss carryforwards to the extent that the Company
has future net operating profits. Management believes that these
limitations, if required, would restrict the Companys
ability to offset any future U.S. taxable income against
its net operating loss carryforwards over the
U.S. statutory carryforward periods to the Annual
Section 382 Limitation before the net effect of certain
future recognized built-in gains or losses, if any,
existing as of the date of the ownership change
Required
Vote
Required Approval. The affirmative vote of a majority of the
votes cast at the annual meeting and entitled to vote thereat is
required for the approval of the Private Placement. The Board
has unanimously voted in favor of the proposed adoption.
The Board unanimously recommends that the Companys
shareholders vote For the Private Placement. If the
shareholders do not approve both Proposal 2 and
Proposal 3, we will be unable to complete the Private
Placement and will not receive any cash from the proposed sale
of common stock.
59
AMEND THE
CERTIFICATE OF INCORPORATION TO INCREASE THE COMPANYS
AUTHORIZED
COMMON STOCK FROM 50,000,000 SHARES TO 100,000,000
SHARES
The Board has authorized, approved and recommended that the
shareholders of the Company approve an amendment to our
Certificate of Incorporation providing for an increase of
authorized shares of common stock from 50,000,000 shares to
100,000,000 shares.
The Board believes that the Private Placement is in the
Companys best interests and the best interests of our
shareholders. Currently, we do not have sufficient authorized
shares to complete the Private Placement described in
Proposal 2. To complete the Private Placement and issue the
Purchased Shares, we need to substantially increase the number
of shares of our common stock authorized for issuance under our
Certificate of Incorporation. It is a condition to the
completion of the Private Placement that our shareholders
approve Proposal 3. Our current Certificate of
Incorporation authorizes 50,000,000 shares of common stock
for issuance. As of June 25, 2007, there were approximately
16,040,000 shares of our common stock outstanding and an
additional approximately 5,233,000 shares reserved for
issuance upon exercise of outstanding options and warrants and
reserved for future issuance under our equity compensation
plans. As a result, as of June 25, 2007, there were only
approximately 28,727,000 authorized shares of our common stock
available for issuance. We have proposed increasing the
authorized number of shares of common stock to
100,000,000 shares to permit completion of the Private
Placement, for the Company to reserve 6,750,000 shares of
common stock for issuance under the 2007 Plan and to provide
additional authorized shares of common stock available to issue
in the future.
Furthermore, the additional shares will be available for
issuance from time to time by us at the discretion of the Board,
subject to shareholder approval as may be required under New
York law or, if then applicable, exchange or NASDAQ regulations.
By increasing the authorized common stock at this time, the
Board will then be able to respond to potential business
opportunities and to pursue important objectives designed to
enhance shareholder value such as raising capital, including,
without limitation, shares of common stock, warrants,
convertible notes and shares underlying these warrants and notes
issued in conjunction with the Investment Agreement, as more
fully described below. In addition, in some situations prompt
action may be required which would not permit seeking
shareholder approval to authorize additional shares for a
specific transaction on a timely basis. Additional authorized
shares will also provide us with greater flexibility to use our
capital stock for various other business purposes including
providing equity incentives to employees, officers and directors
and establishing strategic relationships with other companies.
Other than the arrangements and agreements to issue common stock
discussed below, we have no specific arrangements or plans that
would involve the issuance of the proposed additional authorized
shares.
Our Board believes that it is important to have the flexibility
to act promptly in the best interests of its shareholders. The
increase in the number of authorized shares of common stock
could have an anti-takeover effect, although this is not the
intent of the Board in proposing the amendment. For instance,
our authorized but unissued common stock could be issued in one
or more transactions that would make more difficult or costly,
and less likely, a takeover of the Company.
The proposed amendment to the Certificate of Incorporation would
be reflected in Article FOURTH of such Certificate, as
detailed in the Certificate of Amendment attached hereto as
Appendix C. As set forth in the Certificate of
Incorporation, no holder of common stock shall have any
preemptive rights.
The proposed amendment will become effective, following
shareholder approval and closing of the Private Placement, upon
the filing of a Certificate of Amendment to the Companys
Certificate of Incorporation by the New York Secretary of State.
The completion of the sale of Purchased Shares is subject to
various conditions. In the event that the sale is not
consummated, we will not amend our Certificate of Incorporation
as proposed above.
Required Approval. The affirmative vote of the holders of a
majority of the outstanding common stock of the Company is
required for the approval of the amendment to the Certificate of
Incorporation to increase the
60
authorized common stock from 50,000,000 shares to
100,000,000 shares. The Board has unanimously voted in
favor of the proposed amendment.
The Board recommends that the Companys shareholders
vote For the amendment of the Companys
Certificate of Incorporation to increase the Companys
authorized common stock from 50,000,000 shares to
100,000,000 shares. If the shareholders do not approve both
Proposal 2 and Proposal 3, we will be unable to
complete the Private Placement and will not receive any cash
from the proposed sale of common stock.
61
AMEND THE
CERTIFICATE OF INCORPORATION TO INCREASE THE COMPANYS
AUTHORIZED
PREFERRED STOCK FROM 500,000 SHARES TO 1,500,000
SHARES
The Board has authorized, approved and recommended that the
shareholders of the Company approve an amendment to our
Certificate of Incorporation providing for an increase of
authorized shares of preferred stock from 500,000 shares to
1,500,000 shares.
The Board believes that the Private Placement is in the
Companys best interests and the best interests of our
shareholders. Currently, we do not have sufficient authorized
shares of preferred stock to support the rights under the Rights
Agreement upon completion of the Private Placement described in
Proposal 2. On March 30, 1998, we entered into the
Rights Agreement with our transfer agent, American Stock
Transfer & Trust Company, designed to provide for
fair and equal treatment for all shareholders in the event that
an unsolicited attempt is made to acquire our Company. The
effect of the Rights Agreement is to discourage acquisitions of
more than 15% of our common stock without negotiations with the
Board. The Rights Agreement gives each holder of common stock
the right to purchase
1/100th share
of junior preferred stock upon certain triggering events. With
the approval of Proposal 3, 100,000,000 shares of
common stock will be authorized, and 1,000,000 shares of
preferred stock will be needed to support these rights. Our
current Certificate of Incorporation authorizes
500,000 shares of preferred stock for issuance. The
additional shares may be issued for other purposes including
raising capital, providing equity incentives to employees,
officers, directors or consultants, establishing strategic
relationships with other companies, expanding our business or
product lines through the acquisition of other businesses or
products, and other corporate purposes.
Approval of the amendment to our Certificate of Incorporation to
increase the number of authorized shares of our preferred stock
is a condition to the closing of the Private Placement and if
the shareholders do not approve Proposal 4, we will not be
able to complete the Private Placement and we will not receive
any proceeds from the sale of the Purchased Shares, unless
MatlinPatterson waives the condition. In such event, we also
will not amend our Certificate of Incorporation as described in
Proposal 3 and we will not adopt the 2007 Plan as described
in Proposal 6, even if one or more of such other Proposals
is approved by the shareholders. However, if Proposal 5 is
approved by the shareholders, our Certificate of Incorporation
will still be amended as provided in that Proposal.
The additional shares will be available for issuance from time
to time by us at the discretion of the Board, subject to
shareholder approval as may be required under New York law or,
if then applicable, exchange or NASDAQ regulations. By
increasing the authorized common stock at this time, the Board
will then be able to respond to potential business opportunities
and to pursue important objectives designed to enhance
shareholder value such as raising capital. In addition, in some
situations prompt action may be required which would not permit
seeking shareholder approval to authorize additional shares for
a specific transaction on a timely basis. Additional authorized
preferred shares will also provide us with greater flexibility
to use our capital stock for various other business purposes.
The additional preferred stock consisting of junior preferred
stock to support the rights under the Rights Agreement upon
completion of the Private Placement will include the following
rights:
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Dividends and Distributions. The holders of
junior preferred stock shall be entitled to dividends when
declared by the Board, subject to the rights of the holders of
any shares of any series of preferred stock ranking prior and
superior to the junior preferred stock. The junior preferred
stock shall rank, with respect to dividends and the distribution
of assets, junior to all series of any other class of preferred
stock.
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Voting Rights. The holders of junior preferred
stock shall be entitled to 100 votes per share on all matters
submitted to a vote of the shareholders of the Company. The
junior preferred stock shall have no special voting rights and
the holders consent shall not be required to take any
corporate action.
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Reacquired Shares. Any shares of junior
preferred stock purchased or acquired by the Company shall be
retired and cancelled promptly after the acquisition thereof.
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62
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Liquidation Rights. No distribution shall be
made to holders of shares of preferred stock ranking junior to
the junior preferred stock without the holders of junior
preferred stock first receiving $100 per share, plus accrued and
unpaid dividends.
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Redemption Provisions. Junior preferred
stock shall not be redeemable.
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The additional preferred stock not designated as junior
preferred stock will have the rights and preferences as
determined by the Board at its discretion pursuant to the
Certificate of Incorporation. At the present time, we have no
specific arrangements or plans that would involve the issuance
of the proposed additional authorized shares. Therefore, the
rights and preferences of the additional preferred stock cannot
be stated or estimated at this time.
This proposal would permit the Board, in its discretion, subject
to shareholder approval as may be required under New York law
or, if then applicable, exchange or NASDAQ regulations, to
establish any series of preferred stock. Accordingly, the terms
of the preferred shares, including dividend or interest rates,
conversion prices, voting rights, redemption rights, maturity
dates and similar matters will be determined by the Board,
subject to shareholder approval as may be required under New
York law or, if then applicable, exchange or NASDAQ regulations.
Our Board believes that it is important to have the flexibility
to act promptly in the best interests of its shareholders. The
increase in the number of authorized shares of preferred stock
could have an anti-takeover effect, although this is not the
intent of the Board in proposing the amendment. For instance,
our authorized but unissued preferred stock could be issued in
one or more transactions that would make more difficult or
costly, and less likely, a takeover of the Company.
The proposed amendment to the Certificate of Incorporation would
be reflected in Article FOURTH of such Certificate, as
detailed in the Certificate of Amendment attached hereto as
Appendix C.
The proposed amendment will become effective, following
shareholder approval and closing of the Private Placement, upon
the filing of a Certificate of Amendment to the Companys
Certificate of Incorporation by the New York Secretary of State.
The completion of the sale of Purchased Shares is subject to
various conditions. In the event that the sale is not
consummated, we will not amend our Certificate of Incorporation
as proposed above.
Required Approval. The affirmative vote of the holders of a
majority of the outstanding common stock of the Company is
required for the approval of the amendment to the Certificate of
Incorporation to increase the Companys authorized
preferred stock from 500,000 shares to
1,500,000 shares. The Board has unanimously voted in favor
of the proposed amendment.
The Board recommends that the Companys shareholders
vote For the amendment of the Companys
Certificate of Incorporation to increase the Companys
authorized preferred stock from 500,000 shares to
1,500,000 shares. Proposal 4 is a condition to the
closing of the Private Placement. If the shareholders do not
approve Proposal 4, we will be unable to complete the
Private Placement and will not receive any cash from the
proposed sale of common stock, unless MatlinPatterson waives the
condition.
63
AMEND
CERTIFICATE OF INCORPORATION TO LIMIT THE LIABILITY OF THE
DIRECTORS OF THE COMPANY TO THE EXTENT PERMITTED UNDER
SECTION 402(b) OF THE NEW YORK BUSINESS CORPORATION
LAW
The Board has unanimously approved and recommends to the
shareholders that they consider and approve a proposal to amend
the Companys Certificate of Incorporation to limit the
liability of directors to the extent permitted by
Section 402(b) of the NYBCL. If the proposed amendment is
approved, the Certificate of Incorporation would be amended by
adding an Article NINTH reading in its entirety as follows:
NINTH, To the fullest extent now or hereafter permitted by
law, no director of the corporation shall be personally liable
to the corporation or its shareholders for damages for any
breach of duty in such capacity.
Approval of the amendment to our Certificate of Incorporation to
limit the liability of the directors is a condition to the
closing of the Private Placement and if the shareholders do not
approve Proposal 5, we will not be able to complete the
Private Placement and we will not receive any proceeds from the
sale of the Purchased Shares, unless MatlinPatterson waives the
condition. In such event, we also will not amend our Certificate
of Incorporation as described in Proposal 3 and
Proposal 4 and we will not adopt the 2007 Plan as described
in Proposal 6, even if one or more of such other Proposals
is approved by the shareholders. However, if Proposal 5 is
approved by the shareholders, our Certificate of Incorporation
will still be amended as provided in this Proposal.
This proposal would add to the Companys Certificate of
Incorporation a provision specifically authorized by an
amendment to Section 402(b) of the NYBCL, which became
effective in 1987. As amended, Section 402(b) of the NYBCL
authorizes a corporation, in its original certificate of
incorporation or by an amendment, to eliminate or limit the
personal liability of members of its Board for damages for
breach of a directors duty of care. If the proposed
amendment is approved, a shareholder will be able to prosecute
an action against a director for damages only if the shareholder
can show a breach of the duty of loyalty, a failure to act in
good faith, intentional misconduct, a knowing violation of law,
a personal gain of a financial profit or other advantage to
which the director was not legally entitled, an illegal
dividend, distribution, loan or stock repurchase or distribution
of assets after dissolution without providing for satisfaction
of corporate liabilities, and not negligence or
gross negligence in satisfying his duty of care. One
effect of the proposed amendment would be to deprive
shareholders of a cause of action against the directors for
breach of the duty of care, including grossly negligent business
decisions, in the context of an attempt to acquire control of
the Company. The amendment will not limit or eliminate the right
of the Company or any shareholder to seek an injunction or any
other non-monetary relief in the event of a breach of a
directors duty of care, it will not limit the right to
obtain monetary damages where the acts of bad faith
listed above are shown, nor will it affect a directors
liability under, or duty to comply with, the federal securities
laws. In some situations, however, injunctions or other
non-monetary relief may not be useful. The amendment applies
only to claims against a director arising out of his or her role
as a director and not, if the director is also an officer, the
directors role as an officer or in any other capacity or
to his or her responsibilities under any other law, such as the
federal securities laws.
The amendment does not eliminate the fiduciary duty of care of
the Companys directors. The amendment does not limit in
any way the right of the Company or any shareholder to seek
equitable relief, such as an injunction or recision, in the
event of a breach of a directors duty of care. The effect
of the amendment is to eliminate personal liability of directors
for monetary damages for breaches of their duty of care.
However, although equitable remedies may be available, under
certain circumstances they may not be sufficient as a practical
matter. The amendment applies only to personal liability of
directors and has no effect on the potential liability of
persons for their actions as officers (whether or not they also
are directors) of the Company.
The Board believes that in many instances capable persons may be
unwilling to serve as directors of a corporation without the
protection of adequate directors liability insurance.
Although no director of the Company has threatened to resign,
and to the best of the Companys knowledge, no qualified
person has refused to serve on the Companys Board because
of the threat of personal liability, the Board believes that
limiting the directors personal liability as permitted by
the New York statute will enhance the ability of the Company to
attract and retain highly qualified directors in the future. In
addition, the threat of personal liability may have an adverse
effect on the
64
decision-making process of directors. The proposed amendment
may also encourage directors to make entrepreneurial decisions
which they believe to be in the best interest of the Company
with less threat of personal liability for damages for breach of
their duty of care.
Over the long term, the adoption of the proposed amendment is
expected to facilitate continuation of the Companys
directors liability insurance coverage and make such
coverage less costly, although there can be no assurance that
the amendment will have these effects. The proposed amendment to
the Companys Certificate of Incorporation is not being
proposed in response to any specific resignation, threat of
resignation, or refusal to serve by any director or potential
director of the Company, and the Company is not aware of any
threatened resignation if the proposed amendment is not adopted.
New York law dealing with limitations on director liability does
not permit limiting liability of a director for any act or
omission occurring prior to the effective date of the proposed
amendment, and thus the proposed amendment will have a
prospective effect only. The Company has not received notice of
any pending or threatened claim, suit or proceeding to which the
proposed amendment would apply.
Although the proposed amendment to the Certificate of
Incorporation would eliminate one source of recovery available
to the Company and its shareholders for a directors breach
of fiduciary duty of care, and although it is acknowledged that
the members of the Board have a personal interest in the
approval of the proposed amendment by the shareholders, the
Board believes that the proposed amendment is in the best
interests of the Company and its shareholders. The Board
believes that the proposed amendment will help the Company in
its ability to attract and retain qualified directors and in the
ability of its directors to make the best business decisions of
which they are capable.
The proposed amendment to the Certificate of Incorporation would
be reflected in Article NINTH of such Certificate, as
detailed in the Certificate of Amendment attached hereto as
Appendix C.
The proposed amendment will become effective, after shareholder
approval, upon the filing of a Certificate of Amendment to the
Companys Certificate of Incorporation by the New York
Secretary of State.
If Proposal 5 is approved, we will amend our Certificate of
Incorporation as proposed above regardless of whether
Proposal 2, Proposal 3, Proposal 4 and
Proposal 6 are approved.
Required Approval. The affirmative vote of the holders of a
majority of the outstanding common stock of the Company is
required for the approval of the amendment to the Certificate of
Incorporation to limit the liability of directors. The Board has
unanimously voted in favor of the proposed amendment.
The Board recommends that the Companys shareholders
vote FOR the amendment of the Companys
Certificate of Incorporation to limit the liability of the
directors of the Company to the extent permitted under
Section 402(b) of the NYBCL. Proposal 5 is a condition
to the closing of the Private Placement. If the shareholders do
not approve Proposal 5, we will be unable to complete the
Private Placement and will not receive any cash from the
proposed sale of common stock, unless MatlinPatterson waives the
condition. However, if Proposal 5 is approved by the
shareholders, our Certificate of Incorporation will be amended
as provided in this Proposal regardless of whether
Proposal 2, Proposal 3, Proposal 4 and
Proposal 6 are approved.
65
ADOPT THE
FIRST ALBANY COMPANIES INC.
2007
INCENTIVE COMPENSATION PLAN
On June 11, 2007, the Board approved the 2007 Plan, subject
to shareholder approval.
Set forth below for the convenience of the Companys
shareholders is a summary description of the 2007 Plan. This
description is qualified in its entirety by reference to the
actual 2007 Plan, copies of which are attached to the electronic
copy of this proxy statement filed with the Securities and
Exchange Commission and may be accessed from the
Commissions home page (www.sec.gov). In addition,
copies of the 2007 Plan may be obtained upon written request to:
Jessica Stanley, Executive Associate, First Albany Companies
Inc., 677 Broadway, Albany,
NY 12207-2990.
The 2007 Plan is intended to qualify certain compensation
awarded under the 2007 Plan as performance-based
compensation under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the Code), to the extent
deemed appropriate by the Compensation Committee which
administers the 2007 Plan.
Purpose
The 2007 Plan is designed to advance the interests of the
Company by providing a means through which incentive awards can
be granted to officers, other employees and persons who provide
services to the Company and its subsidiaries. By making grants
of awards under this plan, the Company can attract, retain and
reward such persons and, by linking compensation measures to
performance, the Company can provide incentives for the creation
of shareholder value. In addition, the interests of the
Companys shareholders and the award recipients can be more
closely aligned by giving the recipients an interest in the
long-term success of the Company. The 2007 Plan provides that
the number of shares of common stock available for issuance of
awards under that plan and our existing long-term incentive
plans will be equal to 25% of the total number of shares of
common stock outstanding from time to time.
Number of
Shares
Awards may be made under the 2007 Plan if, at the time of grant,
the aggregate number of shares subject to outstanding awards
under the 2007 Plan and outstanding awards under the First
Albany Restricted Stock Inducement Plan, the 1989 Stock
Incentive Plan, 1999 Long-Term Incentive Plan, and the 2001
Long-Term Incentive Plan (the Preexisting Plans)
plus the number of shares subject to the award being granted
under the 2007 Plan do not exceed 25% of the number of shares
issued and outstanding immediately prior to the grant of such
award. The 2007 Plan provides that no further awards will be
granted under the Preexisting Plans. There is a maximum of
2.5 million shares that may be subject to incentive stock
options granted under the 2007 Plan.
Administration
Authority of the Committee The 2007 Plan
shall be administered by the Executive Compensation Committee
(the Executive Compensation Committee). The
Executive Compensation Committee shall have the full and final
authority to, among other matters, select the persons to whom
awards may be granted; determine the type(s) of awards that may
be granted under the 2007 Plan to each participant; determine
under what circumstances awards may be settled or the exercise
price of an award may be paid in cash, shares, other awards or
other property, or an award may be canceled, forfeited or
surrendered; and to construe and interpret the provisions of the
2007 Plan and outstanding awards.
Manner of Exercise of Committee Authority Any
action taken by the Executive Compensation Committee with
respect to the 2007 Plan shall be final, conclusive, and binding
on all persons, including the Company, its subsidiaries,
participants, and any person claiming any rights under the 2007
Plan from or through any participant or shareholder. In
addition, the express grant of specific authority does not
indicate a limitation of power in areas not expressly granted.
66
The Executive Compensation Committee may delegate to officers or
managers of the Company or its subsidiaries, the authority to
perform functions designated by the Executive Compensation
Committee, to the extent that such delegation is permitted under
applicable laws. In addition, the Board of directors may perform
any function of the Executive Compensation Committee in order to
ensure that transactions under the 2007 Plan are exempt under
Rule 16b-3.
Eligibility
Persons eligible to receive awards under the 2007 Plan include
(a) executive officers, other officers or employees of the
Company and its subsidiaries, including directors, (b) any
person who provides substantial personal services to the Company
or any subsidiary not solely in the capacity as a director, and
(c) any person who has agreed to become an employee of the
Company or any subsidiary provided that such person cannot
receive any payment or exercise any right relating to an award
until such person has begun employment.
Awards
under the 2007 Plan
Options An option is the right to acquire
shares of common stock at a fixed price for a fixed period of
time. Under the 2007 Plan, the Executive Compensation Committee
is authorized to grant options to purchase shares to
participants under the following terms. The exercise price of
the option shall be determined by the Executive Compensation
Committee, however, the exercise price may not be below the fair
market value (on the date of grant) of the shares covered by the
option. The Executive Compensation Committee shall determine the
time an option may be exercised and method by which a exercise
price may be deemed paid, as well as the form of such payment.
The Executive Compensation Committee shall determine at the time
of grant the terms of vesting and forfeiture of the options.
Options granted under the 2007 Plan may be nonqualified stock
options or options that qualify are incentive stock
options under Section 422 of the Code.
Stock Appreciation Rights SARs are awards
that give a participant the right to receive payment from the
Company in an amount equal to (1) the excess of the fair
market value of a share on the date of exercise over the
exercise price, multiplied by (2) the number of shares with
respect to which the award is exercised. The grant price of the
SAR shall not be less than the fair market value of one share on
the date of grant. The Executive Compensation Committee
determines the terms and conditions of each SAR, including
time(s) when an SAR may exercised, method of settlement, and
method of delivery. The Executive Compensation Committee shall
determine at the time of grant the terms of vesting and
forfeiture of the SARs.
Restricted Stock Restricted stock awards are
shares of the Companys common stock which vest in
accordance with terms established by the Executive Compensation
Committee in its discretion. Restricted stock shall be subject
to restrictions on transferability and other restrictions that
the Executive Compensation Committee may impose. These
restrictions may lapse separately or in combination as the
Executive Compensation Committee may determine. Except as
restricted under the terms of the 2007 Plan and any award
agreement regarding restricted stock, a participant shall have
all the rights of a shareholder including the right to vote
restricted stock or the right to receive dividends. Except as
otherwise determined by the Executive Compensation Committee,
upon termination of employment or service during the applicable
restriction period, restricted stock shall be forfeited and
reacquired by the Company.
The Executive Compensation Committee may require that cash
dividends paid on a share of restricted stock may be
automatically reinvested in additional shares of restricted
stock or applied to the purchase of additional awards under the
2007 Plan.
Deferred Stock Deferred stock awards refer to
shares to be delivered to participants at a specified future
date. Shares will be issued at the expiration of the deferral
period specified for an award of deferred stock by the Executive
Compensation Committee. In addition the Executive Compensation
Committee may impose restrictions that may lapse at the
expiration date, an earlier specified date, or otherwise as the
Executive Compensation Committee may determine.
67
Except as otherwise provided by the Executive Compensation
Committee, upon termination of employment during the applicable
deferral period or portion thereof to which forfeiture
conditions apply, all deferred stock that is subject to such
risk of forfeiture shall be forfeited.
Bonus Shares and Awards in Lieu of Cash
Obligations The Executive Compensation Committee
is authorized to grant shares as a bonus or grant shares in lieu
of Company obligations to pay cash or other awards under other
2007 plans or compensatory arrangements. These shares or awards
shall be subject to terms determined by the Executive
Compensation Committee.
Other Stock-Based Awards The Executive
Compensation Committee is authorized to grant such other awards
as may be denominated in, payable in, or otherwise based on the
stock of the Company. These shares or awards shall be subject to
terms determined by the Executive Compensation Committee.
Deferred Compensation Awards The Executive
Compensation Committee is authorized to grant awards in lieu of
cash compensation or upon the deferral of cash compensation
payable by the Company, including cash amounts payable under
other plans. Such awards may be granted at a discount related to
the value of the Award in lieu of the deferred compensation.
Performance-Based Awards The Executive
Compensation Committee may establish performance goals for
individual employees, groups of employees or the Company as a
whole. It may make grants of awards contingent upon the
attainment of such goals.
Annual Incentive Awards The Executive
Compensation Committee may grant awards as a form of bonus as an
alternative to a traditional cash bonus.
New Plan
Benefits
Although the granting of awards under the 2007 Plan is
discretionary, the Company has entered into certain non-compete
and non-solicit agreements that will provide awards under the
2007 Plan as described below. You may also reference the Grants
of Plan-Based Awards During Fiscal Year 2006 table on
page 82 for an example of similar awards made in 2006.
2007
INCENTIVE COMPENSATION PLAN
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Dollar ($)
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|
|
Number of
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Name/Position
|
|
Value(1)
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Units
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George C. McNamee
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0
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0
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Chairman
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|
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|
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Peter J.
McNierney
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|
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1,980,000
|
|
|
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1,100,000
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President and CEO
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|
|
|
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|
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Brian Coad
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|
|
360,000
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|
|
|
200,000
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|
CFO
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|
|
|
|
|
|
|
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Lee Fensterstock
|
|
|
3,600,000
|
|
|
|
2,000,000
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|
Prospective CEO and Chairman
|
|
|
|
|
|
|
|
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Executive Group
|
|
|
2,340,000
|
|
|
|
1,300,000
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|
Non-Executive
Director Group
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|
|
0
|
|
|
|
0
|
|
Non-Executive
Officer Employee Group
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|
|
9,810,000
|
|
|
|
5,450,000
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|
|
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(1) |
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Estimated Amounts. The Company is basing this amount on a per
share price of $1.80, which represents the per share closing
price of the Companys common stock on June 8, 2007. |
Recapitalization
Adjustments
Without the prior approval of shareholders, the Executive
Compensation Committee shall not materially increase the number
of shares to be issued under the 2007 Plan (other than to
reflect a reorganization, stock split, merger, spinoff or
similar transaction); make any material increase in benefits to
participants, including repricing of outstanding options, or
extend the duration of a plan.
68
The Executive Compensation Committee may make adjustments to the
number and kind of awards to participants in the event of any
change in the number of outstanding shares, as equitably
determined by the Executive Compensation Committee in order to
preserve, without enlarging, the rights of participants. by
reason of any share dividend or splits, reorganization,
recapitalizations, merger, consolidation, spin-off, combination
or exchange of shares, repurchase, liquidation, dissolution or
other corporate exchange, any large, special and non-recurring
dividend or distribution to shareholders or similar corporate
transaction.
Amendment,
Suspension or Termination of the Plan
The Board may amend, suspend, discontinue or terminate the 2007
Plan without the consent of shareholders or participants, except
that any amendment shall be subject to the approval of the
Companys shareholders at or before the next annual meeting
of shareholders for which the record date is after such Board
action if such shareholder approval is required by any federal
or state law or regulation or the rules of the NASDAQ Stock
Market, and the Board may otherwise, in its discretion,
determine to submit other such amendments to shareholders for
approval; provided, however, that, without the consent of an
affected participant, no such action may materially impair the
rights of such participant under any award previously granted.
Certain
Federal Income Tax Consequences of The Plan
The following summarizes the United States federal income tax
consequences of awards under the 2007 Plan to participants who
are subject to United States tax. The tax consequences of the
2007 Plan to the Company and participants in other jurisdictions
are not summarized below. The federal income tax treatment of
certain types of awards under the 2007 Plan may be affected by
tax legislation.
Stock Options. An optionee will not generally
recognize taxable income upon the grant of a nonqualified stock
option to purchase shares of common stock. Upon exercise of the
option, the optionee will generally recognize ordinary income
for federal income tax purposes equal to the excess of the fair
market value of the shares of common stock over the exercise
price. The tax basis of the shares of common stock in the hands
of the optionee will equal the exercise price paid for the
shares of common stock plus the amount of ordinary compensation
income the optionee recognizes upon exercise of the option, and
the holding period for the shares of common stock for capital
gains purposes will commence on the day the option is exercised.
An optionee who sells any of the shares of common stock will
recognize short-term or long-term capital gain or loss measured
by the difference between the tax basis of the shares of common
stock and the amount realized on the sale. The Company will be
entitled to a federal income tax deduction equal to the amount
of ordinary compensation income recognized by the optionee. The
deduction will be allowed at the same time the optionee
recognizes the income.
An optionee will not generally recognize income upon the grant
of an incentive stock option to purchase shares of common stock
and will not generally recognize income upon exercise of the
option, provided that the optionee is an employee of the Company
or a subsidiary at all times from the date of grant until three
months prior to exercise. If an optionee who has exercised an
incentive stock option sells the shares of common stock acquired
upon exercise more than two years after the grant date and more
than one year after exercise, capital gain or loss will be
recognized equal to the difference between the sales price and
the exercise price. An optionee who sells the shares of common
stock before the expiration of the foregoing holding periods
will generally recognize ordinary income upon the sale, and the
Company will be entitled to a corresponding federal income tax
deduction at the same time the participant recognizes ordinary
income.
Other Awards. The current United States
federal income tax consequences of other awards authorized under
the 2007 Plan are generally in accordance with the following:
(i) stock appreciation rights are generally subject to
ordinary income tax at the time of settlement;
(ii) restricted stock is generally subject to ordinary
income tax at the time the restrictions lapse, unless the
recipient elects to accelerate recognition as of the date of
grant; (iii) stock units and performance awards are
generally subject to ordinary income tax at the time of payment
and (iv) unrestricted stock awards are generally subject to
ordinary income tax at the time of grant. In each of the
foregoing cases, the
69
Company will generally be entitled to a corresponding federal
income tax deduction at the same time the participant recognizes
ordinary income.
Section 162(m). Section 162(m) of
the Code generally disallows the corporate tax deduction for
certain compensation paid in excess of $1,000,000 annually to
each of the chief executive officer and the four other most
highly paid executive officers of publicly held companies.
Awards that qualify as performance-based
compensation are exempt from Section 162(m), thus
allowing the Company the full federal tax deduction otherwise
permitted for such compensation. If approved by the
Companys stockholders, the 2007 Plan will enable the
Executive Compensation Committee to grant awards that will be
exempt from the deduction limits of Section 162(m).
The completion of the sale of Purchased Shares is subject to
various conditions. In the event that the sale is not
consummated, we will not adopt the 2007 Plan as proposed above.
Required Approval. The affirmative vote of a
majority of the votes cast at the annual meeting and entitled to
vote thereat is required for the adoption of the 2007 Plan. The
Board has unanimously voted in favor of the 2007 Plan.
The Board recommends that the Companys shareholders
vote FOR the First Albany Companies Inc. 2007
Incentive Compensation Plan.
70
RATIFICATION
OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Audit Committee of the Board of Directors has selected
PricewaterhouseCoopers LLP as the Companys independent
accountants for fiscal year ending December 31, 2007. We
are submitting the selection of independent accountants for
shareholder ratification at the annual meeting.
A representative of PricewaterhouseCoopers LLP is expected to be
present at the annual meeting, will have the opportunity to make
a statement if he or she desires to do so and will be available
to respond to appropriate questions from shareholders.
Our organizational documents do not require that our
shareholders ratify the selection of PricewaterhouseCoopers LLP
as our independent accountants. We are doing so because we
believe it is a matter of good corporate practice. If our
shareholders do not ratify the selection, the Audit Committee
will reconsider whether or not to retain PricewaterhouseCoopers
LLP but still may retain them. Even if the selection is
ratified, the Audit Committee, in its discretion, may change the
appointment at any time during the year if it determines that
such a change would be in the best interests of the Company and
its shareholders. The Audit Committee, or a designated member
thereof, pre-approved each audit and non-audit service rendered
by PricewaterhouseCoopers LLP to the Company.
The Board recommends that the Companys shareholders
vote FOR the ratification of the appointment of
PricewaterhouseCoopers LLP as independent accountants of the
Company for the fiscal year ending December 31, 2007.
Principal
Accounting Firm Fees
The following table shows information about fees paid by the
Company to PricewaterhouseCoopers LLP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of 2006
|
|
|
|
|
|
Percentage of 2005
|
|
|
|
|
|
|
Services Approved by
|
|
|
|
|
|
Services Approved by
|
|
Fees paid by the Company:
|
|
2006
|
|
|
Audit Committee
|
|
|
2005
|
|
|
Audit Committee
|
|
|
Audit fees(a)
|
|
$
|
719,690
|
|
|
|
100
|
%
|
|
$
|
732,210
|
|
|
|
100
|
%
|
Audit-related fees(b)
|
|
$
|
156,582
|
|
|
|
100
|
%
|
|
$
|
118,336
|
|
|
|
100
|
%
|
Tax fees(c)
|
|
$
|
19,370
|
|
|
|
100
|
%
|
|
$
|
179,692
|
|
|
|
100
|
%
|
All other fees(d)
|
|
$
|
1,620
|
|
|
|
100
|
%
|
|
$
|
1,620
|
|
|
|
100
|
%
|
|
|
|
(a) |
|
The Audit fees are part of an integrated Audit including cost
related to Sarbanes Oxley Section 404 compliance. The
amount of fees related to Sarbanes Oxley Section 404
compliance was $339,349 for 2006 and $403,857 for 2005. |
|
(b) |
|
Audit-related fees are fees for assurance and related services
that traditionally are performed by the independent accountant
and generally are overseen by a licensed accountant. These
services include employee benefit plan audits, due diligence
related to mergers and acquisitions, accounting consultations
and audits in connection with acquisitions, internal control
reviews, attest services that are not required by statute or
regulation, and consultations concerning financial accounting
and reporting standards. |
|
(c) |
|
Tax fees are fees in respect of tax return preparation,
consultation on tax matters, tax advice relating to transactions
and other tax planning and advice. |
|
(d) |
|
All other fees are fees for accounting and auditing research
software. |
Audit
Committee Pre-Approval Policy
In accordance with the Companys Audit Committee
Pre-Approval Policy (the Pre-Approval Policy), all
audit and non-audit services performed for the Company by the
Companys independent accountants were pre-approved by the
Audit Committee, which concluded that the provision of such
services by PricewaterhouseCoopers LLP was compatible with the
maintenance of that firms independence in the conduct of
its auditing functions.
71
The Pre-Approval Policy provides for categorical pre-approval of
specified audit and permissible non-audit services and requires
the specific pre-approval by the Audit Committee, prior to
engagement, of such services that are individually estimated to
result in an amount of fees that exceed $50,000. In addition,
services to be provided by the independent accountants that are
not within the category of pre-approved services must be
approved by the Audit Committee prior to engagement, regardless
of the service being requested or the dollar amount involved.
Requests or applications for services that require specific
separate approval by the Audit Committee are required to be
submitted to the Audit Committee by both the independent
accountants and the Companys chief financial officer, and
must include a joint statement as to whether, in their view, the
request or application is consistent with the SECs rules
on auditor independence.
The Audit Committee may delegate pre-approval authority to one
or more of its members. The member or members to whom such
authority is delegated shall report any pre-approval decisions
to the Audit Committee at its next scheduled meeting. The Audit
Committee does not delegate its responsibilities to pre-approve
services performed by the independent accountants to management.
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on the Companys review of reports filed by
directors, executive officers and 10% shareholders of the
Company on Forms 3, 4 and 5 pursuant to Section 16(a)
of the Exchange Act, the Company believes that all such reports
were filed on a timely basis during fiscal year 2006 with the
exception of Mr. Goldberg who did not timely file a
transaction on Form 5 with respect to transactions in 2006,
but subsequently reported such transaction on a Form 5
within two days thereafter.
72
ADJOURNMENT
OR POSTPONEMENT OF THE ANNUAL MEETING
TO SOLICIT ADDITIONAL PROXIES
In this proposal, we are asking you to authorize the holder of
any proxy solicited by our Board to vote in favor of an
adjournment or postponement of the annual meeting if there are
insufficient votes at the time of the annual meeting to adopt
Proposal 2, the Private Placement, Proposal 3, to
amend the Companys Certificate of Incorporation to
increase the authorized shares of common stock, Proposal 4,
to amend the Companys Certificate of Incorporation to
increase the authorized shares of preferred stock,
Proposal 5, to amend the Companys Certificate of
Incorporation to limit the liability of the directors of the
Company to the extent permitted under Section 402(b) of the
NYBCL, and Proposal 6, to adopt the 2007 Incentive
Compensation Plan. In that case, we may adjourn or postpone the
annual meeting for a period of time for the purpose of
soliciting additional proxies to adopt Proposal 2,
Proposal 3, Proposal 4, Proposal 5 and
Proposal 6. We do not intend to adjourn or postpone the
annual meeting if there are sufficient votes to adopt
Proposals 2, 3, 4, 5 and 6.
The Board believes it is in the best interests of our
shareholders to enable it to have the flexibility to continue to
seek to obtain sufficient votes to adopt Proposal 2,
Proposal 3, Proposal 4, Proposal 5 and
Proposal 6, if the number of shares voted at the annual
meeting is insufficient to do so.
Required Approval. The affirmative vote of a majority of the
votes cast at the annual meeting and entitled to vote thereat is
required for the adjournment or postponement of the annual
meeting, whether or not a quorum is present.
The Board recommends that the Companys shareholders
vote FOR Proposal 8, should it be submitted to
a vote at the annual meeting. If there are insufficient votes at
the time of the annual meeting to adopt Proposal 2,
Proposal 3, Proposal 4, Proposal 5 and
Proposal 6, and the shareholders do not approve
Proposal 8, we will be unable to complete the Private
Placement and will not receive any cash from the proposed sale
of common stock.
73
STOCK
OWNERSHIP OF PRINCIPAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the
beneficial ownership of common stock of the Company as of
June 25, 2007, by (i) persons owning more than 5% of
the common stock, (ii) each director of the Company and the
current and former executive officers included in the Summary
Compensation Table and (iii) all directors and current
executive officers of the Company as a group. An asterisk in the
percentage column indicates that a person or group beneficially
owns less than 1% of the outstanding shares.
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially Owned(1)
|
|
Name
|
|
Number
|
|
|
Percent
|
|
|
George C. McNamee(2)(3)(5)(6)
|
|
|
1,783,409
|
|
|
|
10.99
|
%
|
Peter J. McNierney(2)(5)
|
|
|
447,302
|
|
|
|
2.78
|
%
|
Brian Coad(2)(5)
|
|
|
55,641
|
|
|
|
*
|
|
Alan P. Goldberg(2)(4)(5)
|
|
|
1,511,994
|
|
|
|
9.19
|
%
|
Carl P. Carlucci, Ph.D.(2)(5)
|
|
|
30,267
|
|
|
|
*
|
|
Nicholas A. Gravante, Jr.(2)(5)
|
|
|
45,967
|
|
|
|
*
|
|
Dale Kutnick(2)(5)
|
|
|
43,731
|
|
|
|
*
|
|
Shannon P. OBrien(2)(5)
|
|
|
8,604
|
|
|
|
*
|
|
Gordon J. Fox(2)(5)
|
|
|
39,102
|
|
|
|
*
|
|
Paul W. Kutey(2)
|
|
|
7,850
|
|
|
|
*
|
|
All directors and current
executive officers as a group (9 persons)(2)
|
|
|
3,960,636
|
|
|
|
23.69
|
%
|
|
|
|
* |
|
References ownership of less than 1.0%. |
|
(1) |
|
Except as noted in the footnotes to this table, the persons
named in the table have sole voting and investment power with
respect to all shares of Common Stock. |
|
(2) |
|
Includes shares of Common Stock that may be acquired within
60 days of June 25, 2007 through the exercise of stock
options as follows: Mr. Coad: 10,000; Mr. Goldberg:
383,100; Mr. McNamee: 155,319; Mr. McNierney: 52,500;
Mr. Carlucci: 5,167; Mr. Gravante: 4,833;
Mr. Kutnick: 5,167; Ms. OBrien: 5,167; and all
directors and current executive officers as a group: 636,758.
Also includes the number of phantom stock units held under the
Companys nonqualified deferred compensation plans as
follows: Mr. Fox: 10,638; Mr. Goldberg: 12,433;
Mr. Kutey: 638; Mr. McNamee: 18,935; and all directors
and current executive officers as a group: 32,015. |
|
(3) |
|
Includes 55,000 shares owned by Mr. McNamees
spouse and through her retained annuity trust. Also includes
39,330 shares owned by Mr. McNamee as custodian for
his minor children. |
|
(4) |
|
Includes 244,539 shares held by the Goldberg Charitable
Trust. Mr. Goldberg is the co-trustee of such trust and
disclaims beneficial ownership of such shares. Also includes
5,715 shares held by various trusts for
Mr. Goldbergs family members for which
Mr. Goldberg is a trustee; Mr. Goldberg disclaims
beneficial ownership of all such shares. |
|
(5) |
|
Includes restricted shares of Common Stock over which the
persons named have no dispositive power: Mr. Coad: 36,885;
Mr. Fox: 1,098; Mr. Goldberg: 3,660; Mr. McNamee:
2,196; Mr. McNierney: 135,000; Mr. Carlucci: 1,000;
Mr. Gravante: 1,000; Mr. Kutnick: 1,000;
Ms. OBrien: 1,000; and all directors and current
executive officers as a group: 188,626. |
|
(6) |
|
Includes 1,146,195 shares pledged by Mr. McNamee in
connection with a loan from KeyBank. No other current director,
nominee director or executive officer has pledged any of the
shares of common stock disclosed in the table above. |
74
DIRECTOR
COMPENSATION FOR FISCAL YEAR 2006
The following table sets forth certain information regarding the
compensation of the Companys directors for the fiscal year
ended December 31, 2006 other than Messrs. McNamee,
McNierney and Goldberg whose compensation is discussed below
under Compensation of Executive Officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
Stock
|
|
|
Option
|
|
|
Incentive Plan
|
|
|
Deferred
|
|
|
All Other
|
|
|
|
|
|
|
Paid in Cash
|
|
|
Awards
|
|
|
Awards
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Total
|
|
Name
|
|
($)
|
|
|
($)(1),(2)
|
|
|
($)(1),(3)
|
|
|
($)
|
|
|
Earnings
|
|
|
($)
|
|
|
($)
|
|
|
Carl P. Carlucci
|
|
|
57,000
|
|
|
|
1,642
|
|
|
|
6,565
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
65,207
|
|
Walter M Fiederowicz*
|
|
|
103,000
|
|
|
|
0
|
|
|
|
1,774
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
104,774
|
|
Nicholas A. Gravante, Jr.
|
|
|
49,500
|
|
|
|
1,642
|
|
|
|
5,741
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
56,883
|
|
Hugh A. Johnson, Jr.*
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
67,465
|
(4)
|
|
|
250,000
|
(4)
|
|
|
317,465
|
|
Dale Kutnick
|
|
|
49,000
|
|
|
|
1,642
|
|
|
|
5,741
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
56,383
|
|
Arthur Murphy**
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
6,136
|
(5)
|
|
|
0
|
|
|
|
6,136
|
|
Shannon P. OBrien
|
|
|
71,000
|
|
|
|
1,642
|
|
|
|
5,741
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
78,383
|
|
Arthur J. Roth*
|
|
|
76,000
|
|
|
|
0
|
|
|
|
1,341
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
77,341
|
|
|
|
|
* |
|
Resigned effective September 28, 2006. |
|
** |
|
Term expired May 16, 2006. |
|
(1) |
|
Amounts set forth in the Stock Awards and Option Awards columns
represent the amounts recognized as compensation expense for
financial statement reporting purposes in fiscal year 2006 by
the Company with respect to restricted stock and option awards,
respectively, in accordance with FAS 123R (disregarding the
estimate of forfeitures related to service-based vesting
conditions). A discussion of the assumptions used in this
valuation with respect to awards made in fiscal year
2006 may be found in Footnote 16 of the Companys
consolidated financial statements for fiscal year 2006 contained
in the Companys Annual Report on
Form 10-K.
Discussions of assumptions used in prior fiscal years may be
found in corresponding footnotes for such fiscal years
consolidated financial statements. Dividends or dividend
equivalents are paid on shares of restricted stock at the same
rate, and at the same time, that dividends are paid to
shareholders of the Company. |
|
(2) |
|
Represents 1,000 shares of restricted stock granted to each
director on August 3, 2006 under the 2003 Non-Employee
Directors Stock Plan. Such shares vest upon the one-year
anniversary of the grant date, subject to certain conditions.
Each grant had a grant date fair value of $3,940. As of the end
of fiscal year 2006, the following directors held the following
aggregate number of shares of restricted stock:
Mr. Carlucci: 1,000; Mr. Gravante: 1,000;
Mr. Kutnick: 1,000; and Ms. OBrien: 1,000. All
resigning directors forfeited their shares of restricted stock
granted on August 3, 2006 in accordance with the terms of
the 2003 Non-Employee Directors Stock Plan. |
|
(3) |
|
As of the end of fiscal year 2006, the following directors held
the following aggregate number of options on common stock:
Mr. Carlucci: 6,000; Mr. Gravante: 5,666;
Mr. Kutnick: 6,000; and Ms. OBrien: 6,000. |
|
(4) |
|
During fiscal year 2006, Mr. Johnson received $67,465 in
earnings credited to his account under the Companys
nonqualified deferred compensation plans and $250,000
representing a consulting fee paid to Mr. Johnson on an
annual basis pursuant to the Consulting Agreement between the
Company and Mr. Johnson, entered into as of
February 1, 2005. For more information about the Consulting
Agreement, please see Certain Relationships and Related
Transactions. |
|
(5) |
|
During fiscal year 2006, Mr. Murphy received $6,136 in
earnings credited to his account under the Companys
nonqualified deferred compensation plans. |
During 2006, the Company paid directors who are not current or
former officers of the Company (the Non-Employee
Directors) an annual retainer of $30,000 and, in addition,
an annual retainer of $40,000 to the lead director. In addition,
the Company paid Non-Employee Directors $1,000 per Board or
committee meeting attended ($500 for attendance by conference
call), plus reimbursement of reasonable expenses. The chair of
the Audit Committee was paid an additional annual retainer of
$30,000 and the Non-Employee Directors who were members
75
of such committee were paid additional annual retainers of
$10,000. The chairs of other committees on the Board were paid
additional annual retainers of $10,000 and Non-Employee
Directors who were members of such other committees were paid
additional annual retainers of $5,000. Employee directors do not
receive any compensation for their service as members of the
Board.
Under the 2003 Non-Employee Directors Stock Plan, the number of
options or restricted shares awarded are generally within the
discretion of the Board, except that no Non-Employee Director
may receive an option covering more than 5,000 shares or
2,000 restricted shares in any year. All options that may be
granted under the 2003 Non-Employee Directors Stock Plan will
have an exercise price equal to the fair market value of the
common stock on the date of grant, become exercisable in three
equal installments beginning on the first anniversary of the
date of grant, and have a ten-year term. Shares of restricted
stock will be subject to vesting conditions as set forth in the
award agreement. If a person ceases to be a director for any
reason (other than death or total disability), any unvested
restricted shares or unexercisable stock options will be
forfeited. In the case of death or total disability of a
director, he or she (or the estate or other legal
representatives) shall become 100% vested in any restricted
shares as of the date of termination of service on the Board.
Such Non-Employee Directors right to exercise any
then-exercisable stock option will terminate 90 days after
the date of such termination (but not beyond the stated term of
such stock option). If a Non-Employee Director dies or becomes
totally disabled, such director (or the estate or other legal
representative of the Non-Employee Director), to the extent the
stock options are exercisable immediately prior to the date of
death or total disability, will be entitled to exercise any
stock options at any time within the one-year period following
such death or disability, but not beyond the stated term of such
stock option. If a Change of Control occurs (i) all stock
options then unexercised and outstanding will become fully
vested and exercisable and (ii) all restrictions, terms and
conditions applicable to restricted shares then outstanding will
be deemed lapsed and satisfied, each as of the date of the
Change of Control.
In addition to any annual grant of options or restricted shares,
under the 2003 Non-Employee Directors Stock Plan, the Board may
from time to time make additional discretionary grants (subject
to the limits noted above) and may permit a Non-Employee
Director to elect to receive all or a portion of
his/her
annual cash retainer in restricted shares.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
On April 26, 2007, the Board of Directors adopted a new
Related Party Transactions Policy (the Policy).
Under the Policy only those related party transactions that have
terms comparable to those that could be obtained in arms
length dealings with an unrelated third party and that are
approved or ratified by the Audit Committee, the disinterested
members of the Board of Directors, and, if and to the extent
involving compensation, the Executive Compensation Committee,
may be consummated or permitted to continue. Related
Parties include any senior officer (including all
executive officers of the Company and its subsidiaries) or
director of the Company, any shareholder owning more than 5% of
the Company (or its controlled affiliates), any person who is an
immediate family member of a senior officer or director, and any
entity owned or controlled by such persons or in which such
persons have a substantial ownership interest. Related
Party Transactions include any transaction between the
Company and any Related Party (including any transactions
requiring disclosure under Item 404 of
Regulation S-K
under the Exchange Act) except transactions available to all
employees generally or those involving less than $5,000 when
aggregated with all similar transactions. Pursuant to the
Policy, any proposed Related Party Transactions may be submitted
for consideration at the Audit Committees regular
quarterly meetings. Following the Audit Committees review,
the Committee will either approve or disapprove such
transactions. In the event that management recommends any
transactions in between regularly scheduled meetings, management
will confer with the Chair of the Audit Committee as to whether
the Company may preliminarily enter into such arrangement
subject to ratification by the full Audit Committee at the next
regularly scheduled meeting.
In the ordinary course of its business, First Clearing, LLC, a
clearing firm with which First Albany Capital has contracted for
broker dealer trading activities, extends credit to employees,
including directors and executive officers, under
Regulation T, which regulates credit in cash and margin
accounts. However, should the account holder fail to meet a
margin call and the securities in the account holders
account prove insufficient to satisfy the
76
margin call, First Albany may be obligated to satisfy the call
on behalf of the account holder. Such extensions of credit are
performing and are made on the same terms as for customers.
As of December 31, 2006, the Company had a commitment to
invest as a limited partner up to $3.8 million in FA
Technology Ventures, L.P. (the Fund), a technology
fund with total limited partner equity commitments of
$100 million. The Company also had a commitment as of that
date to invest up to an additional $0.3 million in parallel
with the Fund; this parallel commitment may be satisfied by
investments from the Companys employee funded investment
vehicles established by the Company to allow select employees to
invest along with the Fund. These commitments extended initially
to the end of the Funds commitment period, which expired
in July 2006; however, the general partner may continue to make
capital calls up through July 2011 for additional investments in
portfolio companies and the payment of management fees.
Messrs. Goldberg and Fiederowicz are also limited partners
in this Fund. The Fund is managed by FA Technology Ventures
Corporation, a wholly-owned subsidiary of the Company, which
receives management fees for its services. George McNamee is an
employee of this subsidiary and received compensation from it,
which is reflected in the summary compensation table below. In
addition, Mr. McNamee is a member of FATV GP LLC, the
general partner of the Fund, with a current 16.50% membership
interest. As a result of this interest in the general partner,
he would be entitled to receive 17.20% of the 20% carried
interest that may become payable by the Fund to its general
partner if the Funds investments are successful.
Mr. McNamee is required under the partnership agreement for
the Fund to devote a majority of his business time to the
conduct of the Fund and any parallel funds.
As of February 1, 2005, the Company entered into a
Consulting Agreement with Hugh A. Johnson, Jr., a former
director of the Company and Chairman of Johnson Illington
(JIA) (the Consulting Agreement). JIA
purchased the Albany, New York operations of FA Asset Management
Inc. in February 2005. As part of the consideration for the
purchase, JIA is obligated to pay the Company a percentage of
its revenues earned through 2009. No such payments were made in
2006. In addition, the Company made payments of $36,706 in 2006
to JIA for certain management fees for investments. Under the
terms of the Consulting Agreement, Mr. Johnson ended his
employment with the Company and began serving as a consultant to
the Company for a three-year period beginning on the date that
certain sale transactions occurred (the Sale
Transactions). The Sale Transactions are governed by an
Asset Purchase Agreement between JIA, First Albany Companies
Inc. (FACI), and First Albany Asset Management Inc.
(FAAM). The Consulting Agreement further provides
that Mr. Johnson receives an annual consulting fee of
$250,000 and FACI provides Mr. Johnson with an office, and
reimbursement for reasonable travel expenses in connection with
the consulting services. During the first year after the
consummation of the Sale Transactions, FACI provided
Mr. Johnson (i) any equipment necessary to perform the
consulting services and (ii) subscriptions to various
services in connection with the performance of the consulting
period in an amount not to exceed $15,000.
In connection with the termination of Arthur Murphys
employment by First Albany Capital as Executive Managing
Director, Mr. Murphy, also a former member of the Board of
Directors of the Company, filed an arbitration claim against
First Albany Capital, Alan Goldberg, former President and Chief
Executive Officer, and George McNamee, Chairman of First Albany
Companies Inc. with the National Association of Securities
Dealers on June 24, 2005. The claim alleged damages in the
amount of $8 million based on his assertions that he was
fraudulently induced to remain in the employ of First Albany
Capital. Without admitting or denying any wrongdoing or
liability, on December 28, 2006, First Albany Capital,
entered into a settlement agreement with Arthur Murphy in
connection with such arbitration claim.
COMPENSATION
OF EXECUTIVE OFFICERS
Compensation
Discussion & Analysis
Compensation Philosophy. 2006 was a year of
transition for the Company. In June, the Board adopted a new
strategic plan for the Company and appointed a new chief
executive officer and a new chief financial officer to implement
it. It also focused much of its efforts on retaining those key
employees necessary for the continued viability of the Company.
While the Companys overall compensation philosophy of pay
for performance has not changed, the Companys compensation
practice continues to evolve.
77
Compensation Components. In the financial
services industry, base salaries tend to be a relatively modest
portion of the total compensation of the Companys
employees, including its executive officers, as compared to
annual cash bonuses and equity-related grants. Base salaries at
the Company are typically set at levels that the Executive
Compensation Committee believes are generally competitive with
those of executives in similar positions at comparable financial
services companies. A significant portion of the total
compensation has been historically paid in the form of annual
cash bonuses. This practice is intended to maximize the portion
of an individuals compensation that is subject to
fluctuation each year based upon corporate and individual
performance. Equity-related grants make up the other important
component of total compensation and focus on longer-term company
objectives. As a result, the predominant portion of our
executive officers compensation is directly related to
short and long-term corporate performance.
We continue to believe that the compensation of our executive
officers should be structured to link the executives
financial reward directly to the performance of the business
unit they lead or, as the case may be, to the performance of the
Company as a whole as well as to their individual performance.
In June 2006, the Company entered into employment agreements
with Mr. McNierney (our chief executive officer),
Mr. Coad (our chief financial officer) and
Mr. Goldberg (our former chief executive officer and
current vice chairman). The employment agreements were
structured both to retain and energize the new management team
of Messrs. McNierney and Coad, to ensure a smooth
transition from Mr. Goldberg to Mr. McNierney as chief
executive officer and to promote Mr. Goldbergs new
role as policy adviser to the Board.
Base Salary. Base salaries are typically set
by reference to job position within the Company with increases
as a reward for superior performance or as a means to attract or
retain necessary executive talent. The Executive Compensation
Committee considers the chief executive officers
recommendations in determining the salary of each of the other
executive officers. The base salaries of Messrs. McNierney,
Coad and Goldberg were agreed upon in their employment
agreements. Messrs. Goldberg, McNierney and Coad were given
increases over their prior salaries. The increase in
Messrs. Goldberg and McNierneys base salaries was
given in order to restore their salaries to their 2005 levels.
The increase in Mr. Coads base salary was given in
recognition of the increase in his responsibilities to the
Company. There was no change in the salaries of Messrs. Fox
and McNamee.
Annual Cash Bonus. In 2006, in light of the
Companys newly adopted business plan and turnover in
management, annual cash bonuses were handled differently from
past practice. Under their employment agreements,
Mr. McNierney and Mr. Coad each were given the
opportunity to earn an annual bonus with a target amount set by
the Board and with bonus objectives consistent with the
Companys strategic plan developed by the Board after
consultation with Mr. McNierney. For 2006, the bonus for
each of Messrs. McNierney and Coad was based upon the
Executive Compensation Committees qualitative assessment
of the overall success in implementation of the Companys
strategic plan in the second half of the year and of his
individual contribution to such success.
In accordance with his agreement, Mr. Goldberg did not
receive a bonus for 2006. Mr. Foxs bonus was also
determined by the Executive Compensation Committee in
consultation with the chief executive officer and based on a
qualitative assessment of his performance in 2006. In setting
Mr. Foxs bonus, the Executive Compensation Committee
also took into account the cash payment made to Mr. Fox in
August of 2006 in recognition of the additional responsibilities
added to his position at that time. Mr. McNamees
bonus was set in recognition of his contribution to the Company
through the profitability of the Companys investments as
well as his contribution to the Companys investment
banking activities.
Historically, annual cash bonuses have been paid pursuant to the
Senior Management Bonus Plan. The specific bonus an executive
received was determined by the Executive Compensation Committee
with reference to his level of responsibility, individual
performance and the performance of his or her business unit
and/or the
Company. The Executive Compensation Committee evaluated levels
of responsibility annually. The Executive Compensation Committee
also made assessments of individual performance annually after
receiving the recommendations of the chief executive officer.
The approved recommendations were based on a number of factors,
including the achievement of pre-established individual and
corporate performance targets, but also initiative, business
judgment, management skills and potential contribution to the
firm. The Executive Compensation Committee intends to
reestablish this bonus practice.
78
Long-Term Equity Incentives. The Company had
historically relied upon annual grants of stock options and,
then in the last three years, restricted stock to retain its
executive officers and to focus them on increasing shareholder
value over the long term. These grants were made in mid-February
in conjunction with the payment of annual cash bonuses for the
prior fiscal year and were based upon job level, Company and
individual performance during the prior fiscal year. The
Executive Compensation Committee determined at the time of the
spring annual grants that no executive officers would receive
equity grants with respect to 2005. Mr. Coad did receive a
restricted stock grant prior to his promotion to chief financial
officer in accordance with the Companys annual award
practice. Certain extraordinary grants of restricted stock were
made to executive officers in 2006. Each of
Messrs. McNierney and Coad received a restricted stock
grant in June 2006 upon their promotion to their current
positions, and Mr. Fox received a restricted stock grant in
May 2006 under a retention bonus plan established by the Company
to retain its key employees. None of the other executive
officers received any equity grants in 2006.
As previously discussed in our amended Annual Report on
Form 10-K/A
for the year ended December 31, 2006, which was filed with
the SEC on April 30, 2007, the Company had, on
March 27, 2007, launched a tender offer to exchange each
outstanding share of restricted stock for three cash-settled
and/or
stock-settled stock appreciation rights with an exercise price
of fair market value on the date of grant. In addition, the
Company had also planned to offer employees the opportunity to
exchange outstanding underwater options for new options at an
exercise price of fair market value on the date of grant. Both
offers were to be subject to shareholder approval, which the
Company had planned to seek at the next annual meeting of
shareholders. The Company had also contemplated implementing new
performance-based equity incentive programs under a new equity
plan for which shareholder approval would also have been
required. However, the Company has agreed to terminate these
plans due to the events and for the reasons described in the
Current Report on
Form 8-K
filed by the Company on May 15, 2007.
Deferred Compensation Plans. Historically, the
Company has offered its employees, including its executive
officers, tax planning opportunities through nonqualified
deferred compensation plans. It first adopted the Deferred
Compensation Plan for Key Employees and the Deferred
Compensation Plans for Professional and Other Highly Compensated
Employees (the Predecessor Plans). It then froze
these plans in 2005 and adopted new plans (the 2005 Deferred
Compensation Plan for Key Employees (Key Plan) and
the 2005 Deferred Compensation Plan for Professional and Other
Highly Compensated Employees (Professional Plan)
(collectively, the 2005 Plans)) as a result of
changes in the tax laws. However, the Company has decided to
freeze the 2005 Plans as well. As a result of declining
participation, the costs of administrating the 2005 Plans were
determined to outweigh the benefits of maintaining them.
Equity-Based Awards Policy. The Executive
Compensation Committee made specific stock option, restricted
stock and other equity-based awards (the Equity-Based
Awards) to employees of the Company. Management of the
Company provided recommendations to the Executive Compensation
Committee with respect to the Equity-Based Awards and the
Executive Compensation Committee met as necessary to consider
such awards on a timely basis. All Equity-Based Awards approved
by the Executive Compensation Committee were granted as of the
date of approval, and the exercise price of any Equity-Based
Awards (as applicable) awarded was fixed as of the closing price
on the date of grant.
Termination of Employment; Change in
Control. The Company does not have a severance
plan or change in control plan in place for its employees or its
executive officers generally. Under their employment agreements,
Messrs. McNierney and Coad would receive severance payments
upon their termination of employment by the Company without
cause or for good reason. The Company believed it necessary to
provide this protection to Messrs. McNierney and Coad in
return for their taking on responsibility for implementing the
Companys new strategic plan. For the same reasons, the
Company offered tax gross ups to Messrs. McNierney and Coad
for any excise taxes they might incur as a result of a change in
control of the Company. Under his agreement, Mr. Goldberg
will continue to receive his salary until the end of his
contract regardless of any termination of employment unless he
voluntarily leaves or is terminated by the Company for cause.
The Company believed that this would help to promote a smoother
organizational transition.
Mr. Paul Kutey resigned as acting Chief Financial Officer
in June 2006, and subsequently from the firm in August 2006. In
return for a general release of possible claims against the
Company, an agreement not to solicit
79
employees of the Company and for an agreement to cooperate with
transition matters, the Company paid Mr. Kutey a lump sum
amount of $300,000.
No individual separation agreement was entered into with
Mr. Fox upon his departure in February 2007.
Most of the Companys outstanding equity awards vest
immediately upon a change in control. However, restricted stock
awards granted in May 2006 under the retention bonus plan vest
ahead of schedule only upon a termination of employment for good
reason or without cause in connection with the change in
control. Of the named executive officers, only Mr. Fox
received a restricted stock award subject to such provisions
(which was forfeited upon his departure). This change in the
2006 awards was designed to help retain people in their jobs in
the event of a change in control.
Tax and Accounting. Section 162(m) of the
U.S. Internal Revenue Code of 1986, as amended (the
Code), places a limit on the tax deduction for
compensation in excess of $1 million paid to certain
covered employees of a publicly held corporation
(generally the corporations chief executive officer and
its next four most highly compensated executive officers in the
year that the compensation is paid). Compensation that is
considered qualified performance-based compensation
generally does not count toward Section 162(m)s
$1 million deduction limit. While the Company is mindful of
the limitations that Section 162(m) may have on the
deductibility of compensation, the Company also determined that
other reasons for compensation structure could sometimes take
precedence over potential tax deductions. The Senior Management
Bonus Plan is designed to assure that all annual bonus
compensation paid to our covered employees is considered
qualified performance-based compensation within the meaning of
Section 162(m). Although based on Company and individual
performance, cash bonuses paid to executive officers in 2006 did
not technically qualify as performance-based compensation due to
the shift in performance objectives in June to correspond with
the new Company strategic plan. Also, the restricted stock
grants, as they vest based upon service only, also do not
technically qualify as performance-based compensation under
Section 162(m). Nonetheless, the only executive officer
that received compensation for which the Company could not take
a deduction by reason of Section 162(m) was
Mr. McNierney.
80
Summary
Compensation Table for Fiscal Year 2006
The following table sets forth certain information regarding
compensation of (i) each person who served as Chief
Executive Officer during fiscal year 2006, (ii) each person
who served as Chief Financial Officer during fiscal year 2006,
and (iii) the Companys three most highly compensated
executive officers other than the Chief Executive Officer and
Chief Financial Officer who were serving as executive officers
as of December 31, 2006 (collectively referred to as the
Named Executive Officers).
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Change in
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Pension
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Value and
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Nonqualified
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Non-Equity
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Deferred
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Stock
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Options
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Incentive Plan
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Compensation
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All Other
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Name and Principal
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Salary
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Bonus
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Awards
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Awards
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Compensation
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Earnings
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Compensation
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Total
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Position
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Year
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($)
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($)
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($)(1)
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($)(1)
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($)
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($)(2)
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($)(3)
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($)
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George C. McNamee
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2006
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240,000
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210,000
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60,017
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6,000
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516,017
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Chairman
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Alan P. Goldberg
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2006
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360,308
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100,026
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55,867
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516,201
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Vice Chairman and Former Chief
Executive Officer
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Peter J. McNierney
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2006
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185,115
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1,015,000
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830,417
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49,880
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2,080,412
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President and Chief Executive
Officer
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Brian Coad
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2006
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183,676
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150,000
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75,107
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7,870
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172
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28,613
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445,438
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Chief Financial Officer
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Gordon J. Fox*
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2006
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200,000
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275,000
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105,918
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33,283
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6,000
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620,201
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Former Executive
Managing Director and Chief Operations Officer
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Paul W. Kutey*
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2006
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194,256
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1,396
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300,000
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495,652
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Former Chief
Financial Officer
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* |
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Mr. Fox left the Company on February 16, 2007.
Mr. Kutey left the Company on August 15, 2006. |
|
(1) |
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Amounts set forth in the Stock Awards and Option Awards columns
represent the amounts recognized as compensation expense for
financial statement reporting purposes in fiscal year 2006 by
the Company with respect to restricted stock and option awards,
respectively, in accordance with FAS 123R (disregarding the
estimate of forfeitures related to service-based vesting
conditions). A discussion of the assumptions used in this
valuation with respect to awards made in fiscal year
2006 may be found in Footnote 16 of the Companys
consolidated financial statements for fiscal year 2006 contained
in the Companys Annual Report on Form
10-K.
Discussions of assumptions used in prior fiscal years may be
found in corresponding footnotes for such fiscal years
consolidated financial statements. Dividends or dividend
equivalents are paid on shares of restricted stock at the same
rate, and at the same time, that dividends are paid to
shareholders of the Company. |
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(2) |
|
Represents earnings credited to the accounts of Named Executive
Officers under the Companys nonqualified deferred
compensation plans (the Predecessor Plans and the 2005 Plans).
For Messrs. McNamee and Goldberg, such earnings were
negative numbers ($24,611) and ($72,017), respectively. |
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(3) |
|
Represents contributions by the Company to the Companys
nonqualified deferred compensation plans on behalf of
Messrs. McNamee and Fox, although Mr. Fox forfeited
this amount upon his termination from employment on
February 16, 2007. Includes payment of legal fees in
connection with the negotiation of Messrs. McNierney and
Coads employment agreements with the Company ($26,964 and
$8,988, respectively) and tax gross ups on such payments
($22,916 and $4,454, respectively). Includes payment of
relocation expenses for Mr. Coad of $15,171. Represents
payments made to Mr. Kutey in connection with his
termination of employment on August 15, 2006. |
81
Grants
of Plan-Based Awards During Fiscal Year 2006
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Grant
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All Other
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All Other
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Date
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Stock
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Option
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Fair
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Awards:
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Awards:
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Exercise
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Value or
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Estimated Future
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Number of
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Number of
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or Base
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Stock
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Payouts Under Non-
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Estimated Future Payouts Under Equity Incentive
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Shares of
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Securities
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Price of
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and
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Equity Incentive Plan Awards
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Plan Awards
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Stock or
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Underlying
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Option
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Option
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Threshold
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Target
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Max.
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Threshold
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Target
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Max.
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Units
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Options
|
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Awards
|
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Awards
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Name
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Grant Date
|
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($)
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($)
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($)
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(#)
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(#)
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(#)
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(#)
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(#)
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($/Sh)
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($)
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George McNamee
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Alan P. Goldberg
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter J. McNierney
|
|
|
6/30/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
225,000
|
|
Brian Coad
|
|
|
2/15/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,091
|
|
|
|
|
|
|
|
|
|
|
|
50,002
|
|
|
|
|
6/30/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
135,000
|
|
Gordon J. Fox
|
|
|
5/16/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,024
|
(1)
|
|
|
|
|
|
|
|
|
|
|
400,003
|
(1)
|
Paul W. Kutey
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Mr. Fox forfeited these awards upon his termination from
employment on February 16, 2007. |
McNierney Employment Agreement. On
June 30, 2006, the Company entered into an employment
agreement with Mr. McNierney (the McNierney
Employment Agreement), which provides for an annual base
salary of $200,000 and an annual bonus the amount of which is to
be determined on an annual basis. It also provides for a grant
of 50,000 restricted shares of the Companys common stock
(50% of which vests on each of June 30, 2007 and
June 30, 2008, subject to Mr. McNierneys
continued employment with the Company on such dates), under a
restricted share award agreement between the Company and
Mr. McNierney entered into on June 30, 2006. In
addition, the McNierney Employment Agreement provides that the
Company will pay Mr. McNierney up to $50,000 for
attorneys fees incurred in connection with entering into
the McNierney Employment Agreement. For further information
regarding the McNierney Employment Agreement see
Termination and Change in Control
Payments below.
Coad Employment Agreement. On June 30,
2006, the Company entered into an employment agreement with
Mr. Coad (the Coad Employment Agreement), which
provides for an annual base salary of $200,000 and an annual
bonus the amount of which is to be determined on an annual
basis. It also provides for a grant of 30,000 shares of the
Companys common stock (50% of which vests on each of
June 30, 2007 and June 30, 2008, subject to
Mr. Coads continued employment with the Company on
such dates), under a restricted share award agreement between
the Company and Mr. Coad entered into on June 30,
2006. In addition, the Coad Employment Agreement provides that
the Company will reimburse Mr. Coad for all reasonable,
documented relocation expenses (including brokers commissions)
in an amount not to exceed $100,000. For further information
regarding the Coad Employment Agreement see
Termination and Change in Control
Payments below.
On June 30, 2006, the Company entered into an employment
agreement with Mr. Goldberg (the Goldberg Letter
Agreement), which provides for an annual base salary of
$400,000 through December 31, 2007. During the term of the
Goldberg Letter Agreement, Mr. Goldberg will retain his
current office and secretarial arrangements and will continue
his participation in the Companys benefit and stock
incentive plans. For further information regarding the Goldberg
Letter Agreement see Termination and Change in
Control Payments below.
Grants of restricted stock under the 1999 Long-Term Incentive
Plan vest in equal annual installments of approximately 33% over
a three year period from date of grant, subject to continued
employment. For further information regarding the 1999 Long-Term
Incentive Plan see Termination and Change in Control
Payments below.
82
The following table sets forth information regarding outstanding
equity awards held by the Companys Named Executive
Officers as of December 31, 2006.
Outstanding
Equity Awards at End of Fiscal Year 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
Market or
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
Market
|
|
Plan
|
|
Payout
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
Value of
|
|
Awards:
|
|
Value of
|
|
|
|
|
|
|
Plan
|
|
|
|
|
|
|
|
Shares or
|
|
Number of
|
|
Unearned
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
Number of
|
|
Units of
|
|
Unearned
|
|
Shares,
|
|
|
Number of
|
|
Number of
|
|
Number of
|
|
|
|
|
|
Shares or
|
|
Stock
|
|
Shares,
|
|
Units or
|
|
|
Securities
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Units
|
|
That
|
|
Units
|
|
Other
|
|
|
Underlying
|
|
Underlying
|
|
Underlying
|
|
Option
|
|
|
|
of Stock
|
|
Have
|
|
or Other
|
|
Rights
|
|
|
Unexercised
|
|
Unexercised
|
|
Unexercised
|
|
Exercise
|
|
Option
|
|
That
|
|
Not
|
|
Rights That
|
|
That Have
|
|
|
Options (#)
|
|
Options (#)
|
|
Unearned
|
|
Price
|
|
Expiration
|
|
Have Not
|
|
Vested ($)
|
|
Have Not
|
|
Not Vested
|
Name(a)
|
|
Exercisable(b)
|
|
Unexercisable(c)
|
|
Options (#)(d)
|
|
($)(e)
|
|
Date(f)
|
|
Vested (#)(g)
|
|
(h)(1)
|
|
Vested (#)(i)
|
|
($)(j)
|
|
George C. McNamee
|
|
|
39,793
|
|
|
|
0
|
|
|
|
|
|
|
|
5.6877
|
|
|
|
1/16/2007
|
|
|
|
2,670
|
(3)
|
|
|
6,194
|
|
|
|
|
|
|
|
|
|
|
|
|
81,445
|
|
|
|
0
|
|
|
|
|
|
|
|
8.036
|
|
|
|
3/27/2008
|
|
|
|
4,328
|
(3)
|
|
|
10,041
|
|
|
|
|
|
|
|
|
|
|
|
|
73,874
|
|
|
|
0
|
|
|
|
|
|
|
|
8.9038
|
|
|
|
3/29/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan P. Goldberg
|
|
|
81,445
|
|
|
|
0
|
|
|
|
|
|
|
|
8.036
|
|
|
|
3/27/2008
|
|
|
|
4,451
|
(3)
|
|
|
10,326
|
|
|
|
|
|
|
|
|
|
|
|
|
73,874
|
|
|
|
0
|
|
|
|
|
|
|
|
8.9038
|
|
|
|
3/29/2009
|
|
|
|
7,212
|
(3)
|
|
|
16,732
|
|
|
|
|
|
|
|
|
|
|
|
|
67,005
|
|
|
|
0
|
|
|
|
|
|
|
|
14.6446
|
|
|
|
4/18/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,775
|
|
|
|
0
|
|
|
|
|
|
|
|
8.8954
|
|
|
|
2/14/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,053
|
|
|
|
0
|
|
|
|
|
|
|
|
7.17
|
|
|
|
12/12/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,947
|
|
|
|
0
|
|
|
|
|
|
|
|
7.17
|
|
|
|
12/12/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
0
|
|
|
|
|
|
|
|
13.35
|
|
|
|
12/22/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter J. McNierney
|
|
|
777
|
|
|
|
0
|
|
|
|
|
|
|
|
5.80
|
|
|
|
10/1/2012
|
|
|
|
167,500
|
(3)
|
|
|
388,600
|
|
|
|
|
|
|
|
|
|
|
|
|
51,723
|
|
|
|
0
|
|
|
|
|
|
|
|
5.80
|
|
|
|
10/1/2012
|
|
|
|
50,000
|
(2)
|
|
|
116,000
|
|
|
|
|
|
|
|
|
|
Brian Coad
|
|
|
2,338
|
|
|
|
0
|
|
|
|
|
|
|
|
13.05
|
|
|
|
9/10/2013
|
|
|
|
890
|
(3)
|
|
|
2,065
|
|
|
|
|
|
|
|
|
|
|
|
|
7,662
|
|
|
|
0
|
|
|
|
|
|
|
|
13.05
|
|
|
|
9/10/2013
|
|
|
|
2,885
|
(3)
|
|
|
6,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,091
|
(3)
|
|
|
18,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
(2)
|
|
|
69,600
|
|
|
|
|
|
|
|
|
|
Gordon J. Fox
|
|
|
159
|
|
|
|
80
|
(4)
|
|
|
|
|
|
|
15.18
|
|
|
|
4/26/2014
|
|
|
|
1,392
|
(3)
|
|
|
3,229
|
|
|
|
|
|
|
|
|
|
|
|
|
13,174
|
|
|
|
6,587
|
|
|
|
|
|
|
|
15.18
|
|
|
|
4/26/2014
|
|
|
|
2,163
|
(3)
|
|
|
5,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,024
|
(3)
|
|
|
215,816
|
|
|
|
|
|
|
|
|
|
Paul W. Kutey
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Market Value is computed by multiplying the closing market price
of the Companys stock at the end of fiscal year 2006
($2.32) by the number of shares subject to the award. |
|
(2) |
|
50% of these awards of restricted stock will vest on
June 30, 2007 and 50% on June 30, 2008. These awards
will fully vest upon termination of the Named Executive
Officers employment without cause or his resignation for
good reason. Upon termination of employment for any other
reason, any unvested shares of restricted stock will be
cancelled and the Named Executive Officer will forfeit any
rights or interests in the restricted stock award. |
|
(3) |
|
This award will vest in equal annual installments of
approximately 33% over a three year period from date of grant,
subject to continued employment under the terms of the 1999
Long-Term Incentive Plan. The grant date(s) for each recipient
is as follows: Mr. Coad: January 29, 2004,
February 2, 2005, February 15, 2006, and June 30,
2006; Mr. Fox: August 19, 2004, March 7, 2005,
and May 16, 2006; Mr. Goldberg: January 29, 2004
and March 7, 2005; Mr. McNamee: January 29, 2004
and March 7, 2005; and Mr. McNierney: February 8,
2005 and June 30, 2006. |
|
(4) |
|
Upon his termination from employment on February 16, 2007,
Mr. Fox forfeited all of his unexercisable options and
unvested restricted stock other than 1,097 shares that will
continue to vest so long as Mr. Fox complies with certain
specified covenants. Any exercisable options that Mr. Fox
has not exercised within 90 days following his termination
of employment on February 16, 2007 will also be forfeited. |
83
The following table sets forth information equity awards held by
the Companys Named Executive Officers exercised or vested
during fiscal year 2006.
Option
Exercises and Stock Vested During Fiscal Year 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of Shares
|
|
|
|
|
|
Number of Shares
|
|
|
|
|
|
|
Acquired on
|
|
|
Value Realized
|
|
|
Acquired on
|
|
|
Value Realized
|
|
Name(a)
|
|
Exercise (#)(b)
|
|
|
on Exercise ($)(c)
|
|
|
Vesting (#)(d)
|
|
|
on Vesting ($)(e)
|
|
|
George C. McNamee
|
|
|
|
|
|
|
|
|
|
|
5,174
|
|
|
|
28,855
|
|
Alan P. Goldberg
|
|
|
|
|
|
|
|
|
|
|
8,323
|
|
|
|
47,396
|
|
Peter J. McNierney
|
|
|
|
|
|
|
|
|
|
|
82,500
|
|
|
|
508,200
|
|
Brian Coad
|
|
|
|
|
|
|
|
|
|
|
2,528
|
|
|
|
14,854
|
|
Gordon J. Fox
|
|
|
|
|
|
|
|
|
|
|
2,417
|
|
|
|
13,317
|
|
Paul W. Kutey
|
|
|
|
|
|
|
|
|
|
|
1,359
|
|
|
|
8,433
|
|
The following table sets forth information regarding
nonqualified deferred compensation plan accounts of the
Companys Named Executive Officers with respect to fiscal
year 2006.
Nonqualified
Deferred Compensation During Fiscal Year 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
Registrant
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
Contributions
|
|
|
Contributions
|
|
|
Earnings
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
|
|
|
in Last
|
|
|
in Last
|
|
|
in Last
|
|
|
Withdrawals/
|
|
|
Balance at
|
|
Name(a)
|
|
Plan(1)
|
|
FY ($)(b)
|
|
|
FY ($)(c)(2)
|
|
|
FY ($)(d)(3)
|
|
|
Distributions ($)(e)
|
|
|
Last FYE ($)(f)
|
|
|
George C. McNamee
|
|
Key
|
|
|
|
|
|
|
|
|
|
|
(24,611
|
)
|
|
|
|
|
|
|
52,226
|
|
Alan P. Goldberg
|
|
Key
|
|
|
|
|
|
|
|
|
|
|
(72,017
|
)
|
|
|
|
|
|
|
92,566
|
|
Peter J. McNierney
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian Coad
|
|
Professional
|
|
|
|
|
|
|
|
|
|
|
172
|
|
|
|
5,588
|
|
|
|
16,035
|
|
Gordon J. Fox
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul W. Kutey
|
|
Professional
|
|
|
20,000
|
|
|
|
|
|
|
|
(8,928
|
)
|
|
|
33,014
|
|
|
|
89,649
|
|
|
|
|
(1) |
|
The Plans include First Albany Companies Inc. Deferred
Compensation Plan for Key Employees; First Albany Companies Inc.
2005 Deferred Compensation Plan for Key Employees; First Albany
Companies Inc. Deferred Compensation Plan for Professional and
Other Highly Compensated Employees and the First Albany
Companies Inc. 2005 Deferred Compensation Plan for Professional
and Other Highly Compensated Employees. |
|
(2) |
|
Any matching contributions made by the Company under the 2005
Plans in 2007 with respect to 2006 are not reflected in this
table, which reflects actions in fiscal year 2006 only. |
|
(3) |
|
With respect to fiscal year 2006, (i) all of the executive
contributions reported are included in the Salary
column, (ii) all of the registrant contributions reported
are included in the All Other Compensation column
and represent Company contributions under the Companys
2005 Plans and (iii) all of the aggregate earnings reported
are included in the Change in Pension Value and
Nonqualified Deferred Compensation Earnings column in each
case in the Summary Compensation Table. |
Deferred
Compensation Plans.
The Company maintains the 2005 Plans to provide an opportunity
for eligible employees to defer the receipt of their salary,
bonuses and commissions. Under each of the 2005 Plans (also with
respect to the Predecessor Plans), the Board appoints a
committee to administer each plan (the Administrative
Committee). Participation in the 2005 Plans is voluntary
(both Key and Professional). A participant may elect to defer
anywhere from $3,000 up to 50% of his or her base annual salary,
bonus amounts and commission payouts earned for services
rendered during a calendar year.
84
For each participant, the Company may, but is not required to,
credit the participants in the 2005 Plans with one or more
Company matches for a plan year expressed as a percentage of the
amount that the participants elected to defer in that plan year.
In addition, the Company may, but is not required to, credit a
participant with one or more discretionary allocations in
respect of a plan year, expressed as a dollar amount or as a
percentage of the participants base salary, bonus amounts,
commission payouts or any combination of the foregoing. The
Board has the sole discretion to determine the amount of the
Company match or discretionary allocation, the participants who
receive the Company match or discretionary allocation and the
investment benchmark that applies to the Company match or
discretionary allocation. To date, the Company has limited these
annual matching contributions to $6,000.
The participant may select the investment benchmark used to
notionally adjust his or her deferral account from among
investment benchmarks made available by the Administrative
Committee from time to time. The investment benchmarks available
to participants in 2006 were: the Common Stock Investment
Benchmark, the Johnson Illington Balanced Portfolio, the
Johnson Illington Equity Portfolio, and the Interest Rate Index
(collectively, the Investment Benchmarks).
Any cash earnings generated under an Investment Benchmark (such
as interest, dividends, distributions and gains) shall be deemed
to be reinstated in that Investment Benchmark, provided,
however, that the Administrative Committee may, in its
discretion, provide that earnings generated by one or more
designated Investment Benchmark be reinvested solely in the
Interest Rate Index. All notional acquisitions and dispositions
of Investment Benchmarks under a participants plan
accounts shall be deemed to occur at such times as the
Administrative Committee shall determine to be administratively
feasible in its sole discretion and the participants plan
accounts shall be adjusted accordingly. In addition, a
participants plan accounts may be adjusted from time to
time, in accordance with procedures and practices established by
the Administrative Committee, in its sole discretion, to reflect
any notional transactional costs and other fees and expenses
relating to the deemed investment, disposition or carrying of
any Investment Benchmark for the participants plan
accounts. Notwithstanding anything to the contrary, any such
adjustments made to any plan account following a Change in
Control shall be made in a manner no less favorable to
participants than the practices and procedures employed under
the plan, or as otherwise in effect, as of the date of the
Change in Control.
The vesting terms of each participants deferred amounts,
Company match and discretionary allocation are established by
the Administrative Committee in its sole discretion. The
Administrative Committee has specified for the 2006 plan year
that amounts deferred at the participants election for the
2006 plan year are 100% vested at all times and that any Company
match for 2006 will vest on December 31, 2008 (except that,
in the event of a termination for Cause, a participant will
forfeit the Company match whether or not vested and in the event
of a termination of employment (voluntarily or involuntarily,
for any reason), death or Disability, a participant will forfeit
the unvested portion of the Company match). The Administrative
Committee may elect to accelerate the vesting of amounts
credited to any participant under the 2005 Plans and, under the
2005 Plans, if within two years following a change in control, a
participant is terminated without cause or resigns for good
reason (each a Covered Termination), as of the
effective date of the Covered Termination such participant will
immediately become vested in 100% of all amounts credited to
such participants plan account.
The 2005 Plans were frozen by the Board of Directors, with
respect to deferrals subsequent to the 2006 plans year,
effective October 26, 2006 because of declining
participation in the 2005 Plans and because the costs of
administration outweighed the benefits of maintaining the 2005
Plans.
The Deferred Compensation Plan for Key Employees, effective
January 1, 1998 (the Predecessor Key Plan), was
frozen by the Board of Directors, effective January 1,
2005, in connection with the adoption of the Key Plan in order
to satisfy the requirements of the new Section 409A of the
Code that was enacted by Congress as part of the American Jobs
Creation Act of 2004.
Like the Key Plan, the Predecessor Key Plan is an unfunded,
non-qualified deferred compensation plan that provided
management or highly compensated employees selected by the
Administrative Committee with the opportunity to defer specified
percentages of their cash compensation and to receive a matching
contribution or discretionary allocation from the Company,
determined by the Company in its sole discretion. These amounts
are credited to the participants notional accounts under
the Predecessor Key Plan. Participants are permitted to select
from among the following investment benchmarks: Common Stock
Investment Benchmark, the Johnson Illington
85
Balanced Portfolio, the Johnson Illington Equity Portfolio, and
the Interest Rate Index for the notional investment of their
deferred compensation, and the Company is permitted to require
that the return on the Companys matching contribution or
discretionary allocation be measured by the performance of the
common stock. The Company may require that, when a participant
receives distribution of his or her accounts, any amounts
notionally invested in the common stock will be paid out in
shares of the common stock.
The Deferred Compensation Plan for Professional and Other Highly
Compensated Employees, effective January 1, 2002, formerly
known as the Non-ERISA Deferred Compensation Plan, (the
Predecessor Professional Plan), was frozen by the
Board of Directors, effective January 1, 2005, in
connection with the adoption of the Professional Plan in order
to satisfy the requirements of the new Section 409A of the
Code that was enacted by Congress as part of the American Jobs
Creation Act of 2004.
Like the Professional Plan, the Predecessor Professional Plan is
an unfunded, non-qualified deferred compensation plan that
provided employees who are not eligible to participate in the
Predecessor Key Plan and who were selected by the Administrative
Committee with the opportunity to defer specified percentages of
their cash compensation and to receive a matching contribution
or discretionary allocation from the Company, determined by the
Company in its sole discretion. These amounts are credited to
the participants notional accounts under the Predecessor
Professional Plan. Participants are permitted to select from
among the following investment benchmarks: the common stock, the
Johnson Illington Balanced Portfolio, the Johnson Illington
Equity Portfolio, and the Interest Rate Index for the notional
investment of their deferred compensation, and the Company is
permitted to require that the return on the Companys
matching contribution or discretionary allocation be measured by
the performance of the common stock. The Company may require
that, when a participant receives distribution of his or her
accounts, any amounts notionally invested in the common stock
will be paid out in shares of common stock.
Under the 2005 Plans, distributions are paid in cash, except
that any portion of a distribution that is attributable to an
investment in the Common Stock Investment Benchmark will only be
paid in shares of the common stock. Under the Key Plan, the
balance of the participants plan account is paid out
either as (i) a lump sum on or about April 15 as early as
the end of the third plan year after the plan year in which the
participants deferral was made or as late as the tenth
plan year or (ii) equal installments commencing no earlier
than April 15 of the end of the third plan year after the plan
year in which the participants deferral was made or no
later than the tenth plan year. Distributions under the
Professional Plan have a shorter term. The Professional Plan
requires all distributions to participants to be paid no later
than April 15 of the end of the fifth year after the plan year
in which the participants deferral was made.
Under the 2005 Plans, in the event that a participant or (after
a participants death) a participants beneficiary
experiences an unforeseeable financial emergency or, for any
reason, the participants benefit (all or part) becomes
taxable prior to receipt, the participant or beneficiary may
petition to receive a partial or full payout of the applicable
amounts credited to one or more of the participants plan
accounts.
For further information regarding these plans, see
Termination and Change in Control
Payments below.
Termination
and Change in Control Payments
The following tables set forth the estimated value of benefits
that the Companys Named Executive Officers would have been
entitled to receive assuming certain terminations of employment
and/or
assuming a change in control of the Company, in each case
occurring on December 31, 2006. The following tables also
use the Companys common stock price as of
December 31, 2006 ($2.32). For restricted stock, the
cash-out value reflects the number of shares vesting as a result
of the triggering event multiplied by such stock price. For
options, the cash-out value reflects the excess of such stock
price over the exercise price of any option vesting as a result
of the triggering event and, if there is no excess, it reflects
a zero value with respect to such option. The tables also
include, where applicable, the accelerated vesting and
distribution of any unvested Company match amounts under the
2005 Plans. Under the 2005 Plans, if within two years following
a change in control, a participant is terminated without cause
or
86
resigns for good reason (each a Covered
Termination), as of the effective date of the Covered
Termination, such participant will immediately become vested in
100% of all amounts credited to such participants plan
account.
|
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|
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|
|
|
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Cash-Out Value of Equity-Based
|
|
|
Value of Company Match
|
|
George C. McNamee
|
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Awards That Vest as a Result of
|
|
|
Account That Vests upon a
|
|
Triggering Event
|
|
Triggering Event ($)
|
|
|
Covered Termination(1)
|
|
|
Prior to a CIC
|
|
|
|
|
|
|
|
|
Termination without cause
|
|
|
|
|
|
|
|
|
Termination for good reason
|
|
|
|
|
|
|
|
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After a CIC
|
|
|
|
|
|
|
|
|
Termination without cause
|
|
|
|
|
|
|
6,600
|
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Termination for good reason
|
|
|
|
|
|
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6,600
|
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Upon a CIC
|
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|
16,235
|
|
|
|
|
|
Death/Disability
|
|
|
16,235
|
|
|
|
|
|
|
|
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(1) |
|
Includes Mr. McNamees unvested match amount as of
December 31, 2006. On February 15, 2007,
Mr. McNamee received a Company match amount of $6,000,
which is not included in the table. |
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|
|
|
|
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|
|
|
|
|
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Cash-Out Value of
|
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|
|
|
|
|
|
|
|
|
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Equity-Based
|
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|
|
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Value of Company
|
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|
|
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Awards That Vest as
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Match Account
|
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Severance
|
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a Result of
|
|
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Value of Benefit
|
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That Vest as a
|
|
Alan P. Goldberg
|
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Payment
|
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Triggering Event
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Continuation
|
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Result of Covered
|
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Triggering Event
|
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($)
|
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($)
|
|
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($)
|
|
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Termination
|
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Prior to a CIC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Termination without cause
|
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400,000
|
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|
|
|
|
|
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3,443
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|
|
|
|
|
Termination for good reason
|
|
|
|
|
|
|
|
|
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3,443
|
|
|
|
|
|
After a CIC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination without cause
|
|
|
400,000
|
|
|
|
|
|
|
|
3,443
|
|
|
|
5,881
|
|
Termination for good reason
|
|
|
|
|
|
|
|
|
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3,443
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|
|
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5,881
|
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Upon a CIC
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27,058
|
|
|
|
|
|
|
|
|
|
Death/Disability
|
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400,000
|
|
|
|
27,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash-Out Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-Based Awards
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
That Vest as a Result of
|
|
|
Value of Benefit
|
|
|
Gross-Up
|
|
Peter J. McNierney
|
|
Payment
|
|
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Triggering Event
|
|
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Continuation
|
|
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Payment
|
|
Triggering Event
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(S)
|
|
|
Prior to a CIC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination without cause
|
|
|
1,861,670
|
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|
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504,600
|
|
|
|
10,486
|
|
|
|
|
|
Termination for good reason
|
|
|
1,861,670
|
|
|
|
504,600
|
|
|
|
10,486
|
|
|
|
|
|
After a CIC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination without cause
|
|
|
1,861,670
|
|
|
|
|
|
|
|
10,486
|
|
|
|
|
|
Termination for good reason
|
|
|
1,861,670
|
|
|
|
|
|
|
|
10,486
|
|
|
|
|
|
Upon a CIC
|
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|
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|
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504,600
|
|
|
|
|
|
|
|
|
|
Death/Disability
|
|
|
|
|
|
|
504,600
|
|
|
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash-Out Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-Based Awards
|
|
|
|
|
|
|
|
|
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Severance
|
|
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That Vest as a Result of
|
|
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Value of Benefit
|
|
|
Gross Up
|
|
Brian Coad
|
|
Payment
|
|
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Triggering Event
|
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Continuation
|
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Payment
|
|
Triggering Event
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(S)
|
|
|
Prior to a CIC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination without cause
|
|
|
525,000
|
|
|
|
97,129
|
|
|
|
10,663
|
|
|
|
|
|
Termination for good reason
|
|
|
525,000
|
|
|
|
97,129
|
|
|
|
10,663
|
|
|
|
|
|
After a CIC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination without cause
|
|
|
525,000
|
|
|
|
|
|
|
|
10,663
|
|
|
|
|
|
Termination for good reason
|
|
|
525,000
|
|
|
|
|
|
|
|
10,663
|
|
|
|
|
|
Upon a CIC
|
|
|
|
|
|
|
97,129
|
|
|
|
|
|
|
|
|
|
Death/Disability
|
|
|
|
|
|
|
97,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash-Out Value of
|
|
|
|
Equity-Based Awards
|
|
|
|
That Vest as a Result of
|
|
Gordon J. Fox
|
|
Triggering Event
|
|
Triggering Event
|
|
($)
|
|
|
Prior to a CIC
|
|
|
|
|
Termination without cause
|
|
|
|
|
Termination for good reason
|
|
|
|
|
After a CIC
|
|
|
|
|
Termination without cause
|
|
|
215,816
|
|
Termination for good reason
|
|
|
215,816
|
|
Upon a CIC
|
|
|
8,247
|
|
Death/Disability
|
|
|
224,063
|
|
Mr. Kutey resigned from the firm in July 2006. In return
for a general release of possible claims against the Company, an
agreement not to solicit employees of the Company through
February 14, 2007 and an agreement to cooperate with
transition matters, the Company paid Mr. Kutey a lump sum
amount of $300,000.
McNierney and Coad
Agreements. Cause is defined in
Mr. McNierneys and Mr. Coads employment
agreements as: (i) the executives conviction of, or
plea of guilty or nolo contendere to, a felony under the laws of
the United States or any state thereof, whether or not appeal is
taken, (ii) the executives conviction of, or plea of
guilty or nolo contendere to, a violation of criminal law
involving the Company and its business, (iii) the willful
material misconduct of the executive or the executives
willful violation of material Company policies, in either case
which has a demonstrable adverse effect on the Company;
(iv) the executives continued failure to perform his
duties except in the case of Disability (as defined in the
applicable employment agreement) after the Company has given the
executive written notice requesting such performance; or
(v) the willful fraud or material dishonesty of the
executive in connection with his performance of duties to the
Company.
Good Reason is defined in Mr. McNierneys
and Mr. Coads respective employment agreements as:
(i) except in the case of a change in control (provided in
the case of Mr. McNierney, he continues to serve as the
senior most executive officer, and in the case of Mr. Coad,
he continues to serve as the senior most financial officer, of
the business of the Company and its subsidiaries as conducted
immediately prior to the change in control), the assignment to
the executive of any duties materially inconsistent with the
executives position that results in a material diminution
in such position (or any failure to appoint and nominate the
executive to the Board, with respect to Mr. McNierney
only); (ii) any failure by the Company to comply with its
obligations under the applicable employment agreement;
(iii) the relocation, without the consent of the executive,
of the executives principal business office to a location
outside of New York City; (iv) any failure to accomplish
the certain aspects of a previously approved Board
restructuring; and (v) until the earlier of the completion
of the Board restructuring described in clause (iv) or the
date immediately following the annual meeting, the Board, by
action or omission, either overrules, vetoes, countermands,
obstructs, constrains or otherwise frustrates or delays, in any
material
88
respect, the executives good faith efforts to accomplish
any material aspect of the strategic plan approved by the Board
on June 29, 2006.
McNierney Agreement. Upon a termination for
Cause or without Good Reason, or in the event of death or
disability, Mr. McNierney will receive: (i) any earned
but unpaid portion of his base salary; (ii) any earned but
unpaid portion of his annual bonus for any completed fiscal
year; and (iii) any unreimbursed business or other expenses
(Accrued Obligations). Upon termination without
Cause or for Good Reason, Mr. McNierney will receive the
Accrued Obligations as well as the following severance payments:
(i) a lump sum severance payment of 1.5 times the sum of
(a) his then current base salary and (b) the average
of the annual bonus amounts previously paid or payable in the
last three completed fiscal years; (ii) a lump sum payment
of the pro-rata portion of the annual bonus he would have earned
if he had remained employed by the Company through the end of
the applicable fiscal year; (iii) all deferred compensation
benefits accrued as of the date of termination; (iv) full
vesting and exercisability of any unvested portion of restricted
stock, stock options or other equity Mr. McNierney may hold
at the time of termination of employment; and (v) eighteen
(18) months of medical, dental, disability and life
insurance coverage continuation with the same employee cost
sharing as applicable to active employees of the Company during
such eighteen (18) month period, subject to cancellation by
the Company in the event that Mr. McNierney becomes
eligible for similar coverage because of subsequent employment.
All of the severance payments described above are contingent
upon Mr. McNierneys execution of an irrevocable
general release. In the event of change in control of the
Company, if compensation payments to Mr. McNierney become
subject to excise tax under Section 280G of the Code, the
Company will pay Mr. McNierney a gross up payment in an
amount equal to the amount of any excise tax imposed on such
compensation payments. The employment agreement also contains
standard post-termination confidentiality, non-competition (for
12 months unless termination without cause or for good
reason) and non-solicitation provisions (for 12 months).
Coad Agreement. Upon a termination for Cause
or without Good Reason or in the event of death or disability,
Mr. Coad will receive his Accrued Obligations. Upon
termination without Cause or for Good Reason, Mr. Coad will
receive his Accrued Obligations as well as the following
severance payments: (i) a lump sum severance payment of 1.5
times the sum of (a) his then current Base Salary and
(b) the average of the annual bonus amounts previously paid
or payable in the last three completed fiscal years or $150,000,
whichever is greater; (ii) a lump sum payment of the
pro-rata portion of the annual bonus he would have earned if he
had remained employed by the Company through the end of the
applicable fiscal year; (iii) all deferred compensation
benefits accrued as of the date of termination; (iv) full
vesting and exercisability of any unvested portion of restricted
stock, stock options or other equity Mr. Coad may hold at
the time of termination of employment; and (v) eighteen
(18) months of medical, dental, disability and life
insurance coverage continuation with the same employee cost
sharing as applicable to active employees of the Company during
such eighteen (18) month period, subject to cancellation by
the Company in the event that Mr. Coad becomes eligible for
similar coverage because of subsequent employment. All of the
severance payments described above are contingent upon
Mr. Coads execution of an irrevocable general
release. In the event of change in control of the Company, if
compensation payments to Mr. Coad become subject to excise
tax under Section 280G of the Code, the Company will pay
Mr. Coad a gross up payment in an amount equal to the
amount of any excise tax imposed on such compensation payments.
The employment agreement also contains standard post-termination
confidentiality and non-solicitation provisions (for
12 months).
Goldberg Agreement. Mr. Goldbergs
letter agreement provides that if Mr. Goldbergs
employment is voluntarily terminated or if Mr. Goldberg is
terminated for Cause (as defined in the letter
agreement), Mr. Goldberg will only receive his base salary
and welfare benefits through the date of termination. The letter
agreement also contains standard post-termination
confidentiality, non-competition (for 3 months) and
non-solicitation provisions (for 3 months).
The
1999 Long Term Incentive Plan and the 2001 Long Term Incentive
Plan
Under both the 1999 Long Term Incentive Plan and 2001 Long Term
Incentive Plan (referred to collectively herein as the
Long Term Incentive Plans, unless otherwise provided in
the relevant award agreement, if a participants employment
is terminated for any reason, any unexercisable stock option or
stock appreciation right (SAR) shall be forfeited
and canceled by the Company. Such participants right to
exercise any then-exercisable stock option or SAR will terminate
ninety (90) days after the date of such termination (but
not beyond the stated
89
term of such stock option or SAR); provided, however, the
Executive Compensation Committee may (to the extent options were
exercisable on the date of termination) extend such period. If a
participant dies, becomes totally disabled or retires, such
participant (or the estate or other legal representative of the
participant), to the extent the stock options or SARs are
exercisable immediately prior to the date of death, total
disability or retirement, will be entitled to exercise any stock
options or SARs at any time within the one-year period following
such death, disability or retirement, but not beyond the stated
term of such stock option or SAR.
Under the Long Term Incentive Plans, unless otherwise provided
in the relevant award agreement, if a participants
employment is terminated for any reason (other than due to
death, total disability or retirement) prior to the lapsing of
any applicable restriction period, or the satisfaction of any
other restrictions, applicable to any grant of restricted
shares, will be forfeited by such participant; provided,
however, that the Executive Compensation Committee may, in its
sole discretion, determine within ninety (90) days after
such termination that all or a portion of such restricted shares
shall not be so forfeited. In the case of death, total
disability or retirement, the participant (or the estate or
other legal representatives of the participant) shall become
100% vested in any restricted shares as of the date of
termination.
Under the Long Term Incentive Plans, Change in Control is
defined as: (i) with certain exceptions, the acquisition by
one individual or entity of 30% or more of either (a) the
shares of the common stock, or (b) the combined voting
power of the voting securities of the Company entitled to vote
generally in the election of directors (ii) any transaction
whereby the individuals who, as of the effective date of the
applicable plan, constitute the Board (the Incumbent
Board) cease to constitute at least a majority of the
Board; except for any transaction whereby an individual becomes
a director subsequent to the effective date of the applicable
plan but whose election as a director is approved by at least a
majority of the directors of the Incumbent Board;
(iii) approval by the shareholders of the Company of a
reorganization, merger or consolidation, other than a
reorganization, merger or consolidation involving the equity
holders of more than 70% of the Companys equity which does
not significantly affect the proportions of equity held by such
equity holders; (iv) approval by the shareholders of the
Company of (a) a complete liquidation or substantial
dissolution of the Company, or (b) the sale or other
disposition of all or substantially all of the assets of the
Company.
If a Change of Control occurs (i) all stock options
and/or SARs
then unexercised and outstanding will become fully vested and
exercisable and (ii) all restrictions, terms and conditions
applicable to restricted shares then outstanding will be deemed
lapsed and satisfied, each as of the date of the Change of
Control; provided, however, that such Change of Control
provisions will only apply to those participants who are
employed by the Company as of the date of the Change of Control
or who are terminated before the Change of Control and
reasonably demonstrate that such termination was in connection
with or in anticipation of the Change of Control; provided
further that with respect to the 1999 Plan, such Change of
Control provisions will apply unless otherwise provided for in
an award agreement.
The
2005 Plans and the Predecessor Plans
Unless otherwise specifically provided under the terms of a
particular annual deferral agreement
and/or the
document announcing an annual discretionary allocation (if any),
in the event of a participants Covered Termination, as of
the effective date of such Covered Termination, all amounts
credited to each of the participants plan accounts, as
adjusted for the applicable Investment Adjustments and all prior
withdrawals and distributions, shall be 100% vested and
non-forfeitable. Under each of the 2005 Plans and the
Predecessor Plans, each plan is administered by a committee
appointed by the Board (collectively, the Administrative
Committee). Distributions under these plans shall be paid
in cash in a single lump sum; except, however, that the
Administrative Committee may provide, in its discretion, that
any distribution attributable to the portion of a plan account
that is deemed invested in an investment benchmark that tracks
the value of Company stock shall be paid in shares of Company
stock.
Covered Termination is defined as the
participants termination of employment within two
(2) years following a Change in Control as a result of the
participants resignation for good reason or a termination
by the participants employer without cause.
Good Reason is defined as a participants
resignation following (i) a diminution in the
participants position or responsibilities, or an
assignment to the participant of duties inconsistent with the
participants position other
90
than for cause or (ii) a reduction of more than 10% in the
participants aggregate annualized compensation rate solely
as a result of a change adopted unilaterally by the Company.
Cause is defined as any termination by reason of the
participants (i) willful and continued failure to
perform the duties of his or her position after receiving notice
of such failure and being given reasonable opportunity to cure
such failure; (ii) willful misconduct which is demonstrably
and materially injurious to the employer; (iii) conviction
of a felony; or (iv) material breach of applicable federal
or state securities laws, regulations or licensing requirements
or the applicable rules or regulations of any self-regulatory
body.
The Administrative Committee may elect to accelerate the vesting
of amounts credited to any participant under the plans in the
event a participant is terminated without Cause within two
(2) years following the Change in Control of the Company,
and the participant will immediately become vested in 100% of
all amounts credited to his account. Distributions under the
2005 Plans and the Predecessor Plans will be paid in cash in a
single lump sum; except, however, that under both plans, the
Administrative Committee may provide, in its discretion, that
any distribution attributable to the portion of a plan account
that is deemed invested in an investment benchmark that tracks
that value of Company stock shall be paid in shares of Company
stock.
Under the 2005 Plans and the Predecessor Plans, in the event a
participant dies or suffers a long-term disability, the
participant (or his or her beneficiary) shall receive a lump sum
payment equal to the participants vested account balance
within ninety (90) days of death or the Administrative
Committees determination that such long-term disability
has occurred. In the event of death, if the participants
account balance is greater than $25,000, the Administrative
Committee may elect to pay his or her vested account balance in
installments not exceeding five (5) years. In the event of
death, the lump sum payment will be made, or installment
payments shall commence, no later than ninety (90) days
after the date the Administrative Committee is provided with
proof that is satisfactory to the Administrative Committee of
the participants death.
91
COMPENSATION
COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
The Company has an Executive Compensation Committee responsible
for approving the compensation of the Companys executive
officers. During the 2006 fiscal year, Mr. Fiederowicz
served on the Executive Compensation Committee until
September 28, 2006, Mr. Gravante served since
September 28, 2006, and Mr. Carlucci served the entire
year. None of the Executive Compensation Committee members is
involved in a transaction or relationship requiring disclosure
as an interlocking executive officer/director, under
Item 404 of
Regulation S-K
or as a former officer or employee of the Company.
EXECUTIVE
COMPENSATION COMMITTEE REPORT*
The Executive Compensation Committee has reviewed and discussed
the Compensation Discussion and Analysis required by the
Securities Exchange Act with management and, based on the
Committees review and discussions with management, the
Committee recommended to the Board that the Compensation
Discussion and Analysis be included in this proxy statement.
EXECUTIVE COMPENSATION COMMITTEE
Nicholas A. Gravante (Chair)
Carl P. Carlucci
* The material in this report is not solicitation
material, is not deemed filed with the SEC, and is not
incorporated by reference in any filing of the Company under the
Securities Act or the Exchange Act, whether made before or after
the date hereof and irrespective of any general incorporation
language in any filing.
92
The Audit Committee of the Company is composed of three
independent directors and operates under a written charter
adopted by the Board which was amended January 2004. The Board
annually reviews the NASDAQ Stock Market listing standards
definition of independence and has determined that each member
of the Committee meets that standard, and each member is
independent within the meaning of
Rule 10A-3
under the Exchange Act and the Companys Corporate
Governance Guidelines.
The Audit Committees job is one of oversight as set forth
in its charter. It is not the duty of the Audit Committee to
prepare the Companys financial statements, to plan or
conduct audits, or to determine that the Companys
financial statements are complete and accurate and are in
accordance with generally accepted accounting principles. The
Companys management is responsible for preparing the
Companys financial statements and for maintaining internal
control and disclosure controls and procedures to ensure the
financial statements are complete and accurate and are in
accordance with generally accepted accounting principles. The
independent accountants are responsible for auditing the
financial statements and expressing an opinion as to whether
those audited financial statements fairly present the financial
position, results of operations, and cash flows of the Company
in conformity with accounting principles generally accepted in
the United States.
During the year 2006, the Committee met at least quarterly with
the Companys Chief Financial Officer. In addition, the
Committee meets with its independent accountants on a quarterly
basis or more frequently, as requested by the independent
accountants or the Committee. At each quarterly meeting in 2006,
the Committee met privately with the independent accountants as
well as with management. The Committee also reviewed its charter
and undertook a self-assessment process and reported the results
of that assessment to the Board.
In 2006, the Committee met during the year with the Director of
the Companys Internal Audit Department and the Director of
the Companys Compliance Department for reports on the
status of certain internal controls.
The Committee recommended to the Board that the Companys
current independent accountants, PricewaterhouseCoopers LLP, be
appointed as the independent accountants to conduct the audit
for the fiscal year ended December 31, 2007. Pursuant to
the revised charter, the Committee is directly responsible for
the appointment of the Companys independent accountants
who shall report directly to the Committee. The Companys
independent accountants have provided to the Committee a written
disclosure required by Independence Standards Board Standard
No. 1 (Independent Discussion with Audit Committees), and
the Committee discussed with the independent accountants that
firms independence.
Management represented to the Committee that the Companys
consolidated financial statements for fiscal 2006 were prepared
in accordance with accounting principles generally accepted in
the United States and the Committee has reviewed and discussed
the consolidated financial statements with management and the
independent accountants. The Committee discussed with the
independent accountants what is required to be discussed by
Statement on Auditing Standards No. 61 (Communication with
Audit Committees), as amended by Statement on Auditing Standards
No. 90 (Audit Committee Communications). Based on these
discussions and reviews, the Committee approved the inclusion of
the audited consolidated financial statements in the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2006 for filing with the
Securities and Exchange Commission.
During fiscal 2006, the Audit Committee performed all of its
duties and responsibilities under the Audit Committee Charter.
In addition, the Audit Committee has determined that the
provision of the non-audit services described in Principal
Accounting Firm fees below is compatible with maintaining
PricewaterhouseCoopers LLPs independence.
AUDIT COMMITTEE
Carl P. Carlucci (Chair)
Shannon P. OBrien
Dale Kutnick
* The material in this report is not solicitation
material, is not deemed filed with the Commission, and is
not incorporated by reference in any filing of the Company under
the Securities Act or the Exchange Act, whether made before or
after the date hereof and irrespective of any general
incorporation language in any filing.
93
FINANCIAL
AND OTHER INFORMATION
Financial and other information required to be disclosed in this
proxy statement for the fiscal year ended December 31, 2006
is included in Appendix D hereto. The financial information
included in Appendix D updates information presented in the
Companys Annual Report on
Form 10-K
and
Form 10-K/A
for the fiscal year ended December 31, 2006 (the 2006
Annual Report) to the extent this information is impacted
by the revised classification in connection with the closure of
the Companys Fixed Income Middle Markets Group, as
previously announced on June 22, 2007, and changes in
business segment reporting methodology due to changes in the
Companys internal organization. The information in
Appendix D is presented as of December 31, 2006 and
has not been otherwise updated to reflect financial results
subsequent to that date or any other changes since the date of
the 2006 Annual Report. Additional financial and other
information required to be disclosed in this proxy statement for
the period ended June 30, 2007 is also included in
Appendix D hereto.
FORWARD
LOOKING STATEMENTS
This report contains forward-looking statements.
These statements are not historical facts but instead represent
the Companys belief regarding future events, many of
which, by their nature, are inherently uncertain and outside of
the Companys control. The Companys forward-looking
statements are subject to various risks and uncertainties,
including the conditions of the securities markets, generally,
and acceptance of the Companys services within those
markets and other risks and factors identified from time to time
in the Companys filings with the SEC. It is possible that
the Companys actual results and financial condition may
differ, possibly materially, from the anticipated results and
financial condition indicated in its forward-looking statements.
You are cautioned not to place undue reliance on these
forward-looking statements. The Company does not undertake to
update any of its forward-looking statements.
At the date of this proxy statement, the Company has no
knowledge of any business other than that described above that
will be presented at the annual meeting. If any other business
should come before the annual meeting, it is intended that the
persons named in the enclosed proxy will have discretionary
authority to vote the shares that they represent.
PLEASE NOTE THAT UPON WRITTEN REQUEST THE COMPANY WILL
PROVIDE TO EACH SHAREHOLDER, WITHOUT CHARGE, A COPY OF ITS
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION ON
FORM 10-K
AND FORM
10-K/A FOR
THE YEAR ENDED DECEMBER 31, 2006. REQUESTS SHOULD BE DIRECTED TO
JESSICA STANLEY, EXECUTIVE ASSOCIATE, FIRST ALBANY COMPANIES
INC., 677 BROADWAY, ALBANY, NY
12207-2990.
You are urged to sign and to return your Proxy promptly in the
enclosed return envelope to make certain your shares will be
voted at the Meeting.
By Order of the Board of Directors
Peter J. McNierney
President and Chief Executive Officer
Albany, New York
August 31, 2007
94
LIST OF
APPENDICES
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Appendix A
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Investment Agreement, form of
Registration Rights Agreement, Voting Agreements and Amendment
to Rights Agreement
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Appendix B
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Freeman & Co. Securities
LLC Fairness Opinion
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Appendix C
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Amendment to the Certificate of
Incorporation
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Appendix D
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Financial Statements of the
Company for the fiscal year ended December 31, 2006 and for
the period ended June 30, 2007
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95
EXECUTION
COPY
INVESTMENT AGREEMENT
Dated as of May 14, 2007
between
FIRST ALBANY COMPANIES INC.
and
MATLINPATTERSON FA ACQUISITION LLC
TABLE OF
CONTENTS
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ARTICLE I
DEFINITIONS AND INTERPRETATION
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Section
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1.1 Definitions
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A-1
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Section
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1.2 Interpretation
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A-1
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ARTICLE II
PURCHASE AND SALE OF PURCHASED SHARES
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Section
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2.1 Purchase and Sale of Stock
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A-2
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Section
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2.2 The Closing
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A-4
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Section
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2.3 Purchaser Deliveries at the
Closing
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A-4
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Section
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2.4 Company Deliveries at the
Closing
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A-4
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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Section
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3.1 Organization
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A-5
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Section
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3.2 Capitalization
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A-5
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Section
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3.3 Subsidiaries and Joint Ventures
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A-6
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Section
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3.4 Authorization; Execution and
Enforceability
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A-6
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Section
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3.5 Validity of Purchased Shares
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A-7
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Section
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3.6 No Conflicts; Consents and
Approvals
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A-7
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Section
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3.7 SEC Reports; Financial
Statements
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A-7
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Section
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3.8 Sarbanes-Oxley; Disclosure and
Internal Controls
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A-8
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Section
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3.9 Absence of Certain Changes
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A-8
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Section
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3.10 No Undisclosed Liabilities
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A-8
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Section
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3.11 Litigation
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A-9
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Section
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3.12 Intellectual Property Rights
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A-9
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Section
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3.13 Exchange Listing
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A-9
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Section
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3.14 Tax Matters
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A-10
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Section
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3.15 Tangible Assets
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A-11
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Section
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3.16 Real Property
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A-11
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Section
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3.17 Insurance
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A-11
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Section
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3.18 Contracts
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A-12
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Section
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3.19 Permits and Regulatory Matters
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A-12
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Section
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3.20 Employees; Employee Benefits
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A-13
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Section
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3.21 Compliance with Law
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A-13
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Section
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3.22 Environmental Matters
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A-13
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Section
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3.23 Transactions with Affiliates
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A-13
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Section
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3.24 Investment Company
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A-13
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Section
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3.25 Corrupt Practices
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A-14
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Section
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3.26 Application of Takeover
Protections
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A-14
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Section
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3.27 Certain Information
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A-14
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Section
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3.28 Securities Law Compliance
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A-14
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Section
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3.29 Brokers
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A-14
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A-i
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
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Section
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4.1 Organization, Standing and
Power
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A-15
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Section
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4.2 Authorization; Execution and
Enforceability
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A-15
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Section
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4.3 No Conflict; Consents and
Approvals
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A-15
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Section
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4.4 Purchase Entirely for Own
Account
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A-15
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Section
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4.5 Investment Experience
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A-15
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Section
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4.6 Disclosure of Information
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A-16
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Section
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4.7 Restricted Securities
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A-16
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Section
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4.8 Legends
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A-16
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Section
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4.9 Accredited Investor
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A-16
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Section
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4.10 No General Solicitation
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A-16
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Section
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4.11 Availability of Funds
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A-16
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Section
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4.12 Certain Information
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A-17
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Section
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4.13 Brokers
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A-17
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Section
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4.14 Tax Matters
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A-17
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ARTICLE V
COVENANTS OF THE COMPANY
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Section
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5.1 Access to Information;
Reporting
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A-17
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Section
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5.2 Preparation of Proxy
Statement; Shareholder Meeting
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A-17
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Section
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5.3 No Solicitation of Transactions
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A-19
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Section
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5.4 Board Actions
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A-20
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Section
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5.5 Changes in the Composition of
the Board
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A-20
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Section
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5.6 Strategic Plan
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A-20
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Section
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5.7 Conduct of Business
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A-20
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Section
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5.8 Listing
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A-22
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Section
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5.9 Preserve Accuracy of
Representations and Warranties; Fulfillment of Conditions;
Notification of Certain Matters
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A-22
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Section
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5.10 Contractual Consents and
Governmental Approvals
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A-23
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Section
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5.11 Use of Proceeds
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A-23
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ARTICLE VI
CONDITIONS
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Section
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6.1 Conditions to the
Companys Obligations
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A-24
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Section
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6.2 Conditions to the
Purchasers Obligations
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A-24
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ARTICLE VII
INDEMNIFICATION
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Section
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7.1 Survival
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A-25
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Section
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7.2 Indemnification
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A-26
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Section
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7.3 Damages Threshold
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A-26
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Section
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7.4 Indemnification Procedures
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A-26
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Section
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7.5 Third-Party Claims
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A-26
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Section
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7.6 Special Tax Indemnity
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A-27
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Section
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7.7 Tax Treatment of Indemnity
Payments
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A-27
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A-ii
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ARTICLE VIII
FURTHER AGREEMENTS
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Section
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8.1 Public Announcements
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A-27
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Section
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8.2 Fees and Expenses
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A-27
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ARTICLE IX
GENERAL
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Section
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9.1 Termination
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A-28
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Section
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9.2 Notice
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A-29
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Section
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9.3 Complete Agreement; No
Third-Party Beneficiaries
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A-30
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Section
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9.4 GOVERNING LAW
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A-30
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Section
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9.5 No Assignment
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A-30
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Section
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9.6 Headings
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A-30
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Section
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9.7 Counterparts
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A-30
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Section
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9.8 Remedies; Waiver
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A-30
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Section
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9.9 Severability
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A-30
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Section
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9.10 Amendment; Waiver
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A-30
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Exhibits
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Exhibit A Defined Terms
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A-32
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Exhibit B Form of
Opinion of Sidley Austin LLP
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A-38
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Exhibit C List of
Closing Deliveries
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A-41
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Exhibit D Form of
Opinion of Dewey Ballantine LLP
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A-42
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Exhibit E Financing
Commitment
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A-46
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Exhibit F Form of
Registration Rights Agreement
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A-48
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A-iii
INVESTMENT
AGREEMENT
INVESTMENT AGREEMENT (this Agreement), dated as of
May 14, 2007, between FIRST ALBANY COMPANIES INC., a New
York corporation (the Company), and MATLINPATTERSON
FA ACQUISITION LLC, a Delaware limited liability company (the
Investor),
WITNESSETH:
WHEREAS the Company wishes to issue and sell to the Investor
(and any Co-Investors designated by the Investor as provided
below), and the Investor (together with any such Co-Investors)
wishes to purchase from the Company, the Purchased Shares and
related Rights (each as defined below, with such purchase being
sometimes hereinafter referred to as the Investment)
upon the terms and subject to the conditions set forth herein
and in the Registration Rights Agreement (as defined below);
WHEREAS the Board of Directors of the Company (the
Board), based on the unanimous recommendation of a
special committee of independent directors of the Company (the
Special Committee), has approved, and deems it
advisable and in the best interests of the shareholders of the
Company, to consummate the Investment and the related
transactions contemplated herein (collectively, the
Transactions), upon the terms and subject to the
conditions set forth herein;
WHEREAS, concurrently with the consummation of the Investment,
the Company and the Investor wish to make certain changes to the
Board, including making certain changes to the composition and
membership and the committees thereof;
WHEREAS, the Investor has entered into certain voting agreements
with certain shareholders of the Company pursuant to which such
shareholders have agreed to vote the shares of Common Stock
beneficially owned by them in favor of approval of the
Transactions (Voting Agreements), and may enter into
additional such Voting Agreements after the date hereof;
NOW, THEREFORE, in consideration of these premises and the
representations, warranties, covenants and agreements herein set
forth, the parties agree as follows:
ARTICLE I
DEFINITIONS
AND INTERPRETATION
Section 1.1 Definitions. The
capitalized terms that are defined in Exhibit A are used
herein with the meanings set forth therein.
Section 1.2 Interpretation.
(a) Headings. The headings to the Articles, Sections and
Subsections of this Agreement or any Exhibit to this Agreement
are inserted for convenience of reference only and shall not
affect the meaning or interpretation of this Agreement.
(b) Usage. In this Agreement, unless the context requires
otherwise: (i) the singular number includes the plural
number and vice versa; (ii) reference to any gender
includes each other gender; (iii) the Exhibits to this
Agreement are hereby incorporated into, and shall be deemed to
be a part of, this Agreement; (iv) the terms
hereunder, hereof, hereto
and words of similar import shall be deemed references to this
Agreement as a whole and not to any particular section or other
provision hereof; (v) the words include,
includes and including shall be deemed
to be followed by the words without limitation;
(vi) a reference to any Article, Section, Subsection or
Exhibit shall be deemed to refer to the corresponding Article,
Section, Subsection, or Exhibit of this Agreement and (vii)a
reference to any Schedule shall be deemed to refer to the
corresponding Schedule to the Company Disclosure Letter.
A-1
ARTICLE II
PURCHASE AND
SALE OF PURCHASED SHARES
Section 2.1 Purchase
and Sale of Stock.
(a) At the Closing, the Company shall issue and sell, and
the Purchasers shall purchase, the number of Purchased Shares
determined pursuant to Section 2.1(b) below, together with
one Right attached to each such Purchased Share, all on the
terms set forth herein and free and clear of any Liens. At the
Closing, the Purchasers shall pay the Company, as consideration
for the Purchased Shares, an aggregate purchase price of
$50,000,000 (the Purchase Price) less any
Reimbursable Expenses permitted to be deducted from the Purchase
Price pursuant to Section 8.2 below (the amount of the
Purchase Price remaining after the deduction of such
Reimbursable Expenses being sometimes hereinafter referred to as
the Net Purchase Price).
(b) The number of shares of Common Stock to be purchased by
the Purchasers hereunder (the Purchased Shares,
which term shall also be deemed to refer to the attached Rights
unless the context requires otherwise) shall be 33,333,333,
subject to adjustment as provided in subsections (i) and
(ii) below. The Purchase Price will not be changed as a
result of any such adjustment in the number of Purchased Shares.
(i) If the DEPFA Transaction has not been consummated prior
to the Closing Date, the number of Purchased Shares shall be
equal to the product of (x) 33,333,333 multiplied by
(y) the Excess Compensation Dilution Factor. The
Excess Compensation Dilution Factor for such purpose
shall be determined in accordance with the following formula:
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ECDF
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=
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1 + EC
¸ OS
$1.50
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where:
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ECDF
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=
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The Excess Compensation Dilution
Factor
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EC
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=
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The amount of Excess Compensation
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OS
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=
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The number of shares of Common
Stock outstanding as of the Closing Date (before giving effect
to the Transactions)
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Excess Compensation shall mean the sum of
(1) any Excess Cash Compensation and (2) any Excess
Imputed Stock Based Compensation. Excess Cash
Compensation shall mean the incremental amount of cash
compensation paid or payable, directly or indirectly, by the
Company or any Subsidiary to or in respect of any MCMG Employees
as a result of the Closing taking place prior to the closing of
the DEPFA Transaction. Such Excess Cash Compensation shall
include any cash bonuses or other amounts paid or payable by the
Company or any Subsidiary to any such MCMG Employee (or payable
to DEPFA in respect of such MCMG Employee pursuant to
Section 2.1(h) of the DEPFA Purchase Agreement) that would
not have been so paid or payable if the DEPFA Transaction had
been consummated immediately prior to the Closing Date and
assuming that all the MCMG Employees would have become employees
of DEPFA as part of the DEPFA Transaction. Excess Imputed
Stock Based Compensation shall mean the sum of
(i) the product of (A) the number of shares of Common
Stock subject to Restricted Stock Awards granted to MCMG
Employees that become vested as a result of the Closing taking
place that would not have become vested if the DEPFA Transaction
had been consummated immediately prior to the Closing Date and
assuming that all the MCMG Employees would have become employees
of DEPFA as part of the DEPFA Transaction multiplied by
(B) $1.50 per share and (ii) the product of
(x) the number of shares of Common Stock subject to
Employee Stock Options granted to MCMG Employees that become
vested as a result of the Closing taking place that would not
have become vested if the DEPFA Transaction had been consummated
immediately prior to the Closing Date and assuming that all the
MCMG Employees would have become employees of DEPFA as part of
the DEPFA Transaction, but only to the extent that the exercise
price with respect to any such Employee Stock Option is less
than $1.50 per share, multiplied by (y) with respect
to each such Employee Stock Option, the excess of $1.50 per
share over the applicable exercise price.
(ii) (A) If the Net Tangible Book Value Per Share as
of the Closing Date as shown in the Closing Net Tangible Book
Value Report is less than $1.60, the number of Purchased Shares
shall be equal to (x) the number of Purchased Shares after
giving effect to any adjustment required pursuant to
subsection (i) above multiplied by (y) the NTBV
A-2
Adjustment Factor. The NTBV Adjustment Factor for
such purpose shall be determined in accordance with the
following formula:
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NTBVAF
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=
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1 + $1.50 − .8886NTBV
$1.50
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where:
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NTBVAF
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=
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The NTBV Adjustment Factor, which
shall not be less than 1.
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NTBV
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=
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The Net Tangible Book Value Per
Share as of the Closing Date (or, for the purpose of Subsection
(B) below, as of the Measurement Date)
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(B) Not less than three (3) Business Days prior to the
Closing Date, the Company shall deliver to the Investor a report
(the Preliminary Net Tangible Book Value Report),
certified by the Chief Financial Officer of the Company in a
manner reasonably satisfactory to the Investor, which shall
contain: (a) an unaudited consolidated balance sheet of the
Company and its consolidated subsidiaries (the Measurement
Date Balance Sheet) as of the end of the most recent month
that has ended not less than five (5) Business Days prior
to the Closing Date (the Measurement Date), prepared
in accordance with GAAP consistently applied (except that such
balance sheet need not include footnotes or provide for
adjustments that normally would be made at year end consistent
with the Companys past accounting practices), (b) if
the DEPFA Transaction has been consummated on or prior to such
Measurement Date, a pro forma consolidated balance sheet (the
Measurement Date Pro Forma Balance Sheet) based on
the Measurement Date Balance Sheet but adjusted to eliminate any
gain, loss or other accounting effects of the DEPFA Transaction,
(c) a detailed calculation, based on the Measurement Date
Balance Sheet or, if one is required to be included in the
Preliminary Net Tangible Book Value Report, the Measurement Date
Pro Forma Balance Sheet, showing the Net Tangible Book Value Per
Share as of the Measurement Date (the Preliminary Net
Tangible Book Value Per Share), (c) a detailed
calculation of the NTBV Adjustment Factor based on such
Preliminary Net Tangible Book Value Per Share (the Prelim
NTBV Adjustment Factor), and (d) a detailed
calculation of the number of Purchased Shares after giving
effect to such Preliminary NTBV Adjustment Factor and, to the
extent applicable, the Excess Compensation Adjustment Factor. At
the Closing, the number of Purchased Shares issued to the
Purchasers shall be based on the Preliminary NTBV Adjustment
Factor, but the final number of Purchased Shares shall be
subject to adjustment after the Closing as provided in
Subsection 2.1(b)(ii)(C) below.
(C) As soon as practicable, but in no event later than
sixty (60) days after the Closing Date (unless such
deadline is extended by mutual agreement of the Company and the
Investor), the Company shall deliver to the Investor a report
(the Final Net Tangible Book Value Report),
certified by the Chief Financial Officer of the Company in a
manner reasonably satisfactory to the Investor, which shall
contain: (a) an unaudited consolidated balance sheet of the
Company and its consolidated subsidiaries (the Closing
Date Balance Sheet) as of the Closing Date, prepared in
accordance with GAAP consistently applied (except that such
balance sheet need not include footnotes or provide for
adjustments that normally would be made at year end consistent
with the Companys past accounting practices), accompanied
by a review report of the Companys auditors, (b) a
pro forma consolidated balance sheet (the Closing Date Pro
Forma Balance Sheet) based on the Closing Date Balance
Sheet but adjusted to eliminate (x) any gain, loss or other
accounting effects of the DEPFA Transaction (if the DEPFA
Transaction has been consummated prior to such Closing Date) or
(y) the effects of any Excess Compensation resulting from
the consummation of the Transactions (if the DEPFA Transaction
has not been consummated prior to the Closing Date), (c) a
detailed calculation, based on the Closing Date Pro Forma
Balance Sheet, showing the Net Tangible Book Value Per Share as
of the Closing Date (the Final Net Tangible Book Value Per
Share), and (c) a detailed calculation of the NTBV
Adjustment Factor based on such Preliminary Net Tangible Book
Value Per Share (the Final NTBV Adjustment Factor).
If the number of Purchased Shares determined based on the Final
NTBV Adjustment Factor is greater than the number of Purchased
Shares determined based on the Preliminary NTBV Adjustment
Factor, the Company shall promptly issue to the Purchasers, pro
rata based on the numbers of Purchased Shares issued to them at
the Closing, a number of additional shares of Common Stock
(together with the related Rights) equal to such excess. If the
number of Purchased Shares determined based on the Preliminary
NTBV Adjustment Factor is greater than the number of Purchased
Shares determined based on the Final NTBV Adjustment Factor, the
Purchasers shall promptly surrender to the Company, pro rata
based on the numbers of Purchased Shares issued to them at the
Closing, a number of the Purchased Shares (together with the
related Rights) issued to them at
A-3
the Closing equal to such excess, provided that the final number
of Purchased Shares shall in no event be less than 33,333,333.
(c) By written notice given to the Company not less than
five (5) Business Days prior to the Closing Date (the
Designation Notice), the Investor may designate one
or more other Persons (each a Co-Investor and
collectively, together with the Investor, the
Purchasers) to purchase a portion of the Purchased
Shares in the place of the Investor, with the name of each
Co-Investor and the number of Purchased Shares to be purchased
by it being set forth in the Designation Notice, provided that
the number of Purchased Shares to be purchased by the Investor
shall not be less than 29,000,000. It shall be a condition
precedent to the effectiveness of the designation of any
Co-Investor that such Co-Investor execute and deliver to the
Company and the Investor a Joinder Agreement (a
Co-Investor Joinder Agreement) in a form reasonably
satisfactory to the Company and the Investor pursuant to which
(i) such Co-Investor agrees to become a party to this
Agreement as a Purchaser hereunder, (ii) such
Co-Investor makes representations and warranties comparable to
those being made by the Investor in Article IV (with such
modifications as are necessary to reflect any difference in the
legal nature of such Co-Investor and the source of its funds for
making its investment compared to the Investor), (iii) such
Co-Investor sets forth its notice address(es) for the purposes
of Section 9.2 hereof and (iv) such Co-Investor agrees
to be bound by the Investor Confidentiality Agreement as if it
were a party thereto.
Section 2.2 The
Closing.
The closing of the Investment (the Closing) and all
actions contemplated by this Agreement and the Registration
Rights Agreement to occur at the Closing shall take place in the
offices of Sidley Austin LLP, 787 Seventh Ave., New York, New
York, at 9:30 a.m. local time, on a date to be specified by
the parties, which shall be no later than the second Business
Day following the day on which the last of the conditions set
forth in Article IV (other than those conditions required
to be fulfilled at the Closing) shall have been fulfilled or
waived, or at such other time and place as the Company and the
Investor may agree. At the Closing, the Purchasers and the
Company shall make certain deliveries, as specified in
Sections 2.3 and 2.4, respectively, and all such
deliveries, regardless of chronological sequence, shall be
deemed to occur contemporaneously and simultaneously on the
occurrence of the last delivery and none of such deliveries
shall be effective until the last of the same has occurred.
Section 2.3 Purchaser
Deliveries at the Closing. At the Closing, the
Purchasers shall deliver to the Company:
(a) an amount in
same-day
funds equal to the Net Purchase Price by wire transfer to a bank
account designated in writing by the Company at least two
Business Days prior to the Closing;
(b) one or more invoices itemizing the Reimbursable
Expenses;
(c) the Registration Rights Agreement duly executed by the
Purchasers;
(d) an opinion, dated the Closing Date, of Sidley Austin
LLP substantially to the effect set forth in
Exhibit B; and
(e) each of the other certificates and documents listed in
Part I of Exhibit C.
Section 2.4 Company
Deliveries at the Closing. At the Closing, the Company shall
deliver to the Purchasers:
(a) a certificate or certificates (in denominations
specified by the Investor) representing the Purchased Shares,
registered in the names of the Purchasers;
(b) the Registration Rights Agreement duly executed by the
Purchasers;
(c) an opinion, dated the Closing, Date, of Dewey
Ballantine LLP substantially to the effect set forth in
Exhibit D;
(d) each of the additional certificates and documents
listed in Part II of Exhibit C.
A-4
ARTICLE III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchasers,
except in each case as specifically set forth in (i) the
Company Disclosure Letter, (ii) the SEC Reports (excluding
any disclosure therein that constitutes a risk
factor or a forward looking statement under
the heading Forward Looking Statements in any such
SEC Report (provided that the exclusion of any such risk
factor or forward looking statement shall not
supersede or otherwise limit any of the exceptions set forth in
clauses (a) through (m) in the definition of
Company Material Adverse Effect or the effectiveness
of any disclosure set forth in the Company Disclosure Letter) or
(iii) the DEPFA Purchase Agreement and the Disclosure
Letter Schedule relating thereto (each of which have been
provided to the Purchasers prior to the date of this Agreement),
as follows:
Section 3.1 Organization.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of New
York. True and correct copies of the certificate of
incorporation and by-laws of the Company, as amended through the
date hereof, have been filed as exhibits to the SEC Reports. The
Company has all requisite corporate power and authority to carry
on the businesses in which it is engaged (and as described in
the SEC Reports) and to own or lease its properties. The Company
is duly qualified to conduct business as a foreign corporation
and is in good standing under the laws of each jurisdiction in
which the nature of its businesses or the ownership or leasing
of its properties requires such qualification, other than where
the failure to be so qualified would not reasonably be expected,
individually or in the aggregate, to have a Company Material
Adverse Effect. The Company is not in default under or in
violation of any provision of its certificate of incorporation
or by-laws, and no such defaults or violations have occurred in
the past which would reasonably be expected, individually or in
the aggregate, to have a Company Material Adverse Effect.
Section 3.2 Capitalization.
(a) As of the date hereof, the authorized capital stock of
the Company consists of 50,000,000 shares of Common Stock
and 500,000 shares of Preferred Stock. As of the Closing
Date, upon the effectiveness of the Charter Amendment, the
authorized capital stock of the Company will consist of
100,000,000 shares of Common Stock and
1,500,000 shares of Preferred Stock. No shares of Preferred
Stock are currently outstanding and, other than the
Companys Series A Junior Participating Preferred
Stock referred to in the Rights Agreement, no series of
Preferred Stock has been designated or reserved for issuance. Of
the shares of Common Stock currently authorized:
(i) 1,074,510 shares of Restricted Stock are currently
outstanding, (ii) 278,433 shares are currently held in
a rabbi trust to hedge certain deferred compensation
obligations, (iii) 436,625 shares are reserved for
issuance upon the exercise of the Lender Warrants,
(iv) 1,846,590 shares are reserved for issuance upon
the exercise of Employee Stock Options, (v) 1,596,842
additional shares are reserved issuance pursuant to the Employee
Stock Incentive Plans in respect of future awards under such
plans and (vi) no other shares are reserved for issuance
for any purpose.
(b) Schedule 3.2(a) sets forth a list of (i) all
Employee Stock Options currently outstanding and (ii) all
Restricted Stock Awards currently outstanding and indicating
which Employee Stock Options and awards of Restricted Stock
Awards are expected to lapse upon the consummation of the DEPFA
Transaction.
(c) Except as set forth in Schedule 3.2(b), there are
no outstanding Convertible Securities. Except as disclosed on
Schedule 3.2(b), the issuance of the Purchased Shares as
contemplated herein will not cause the number of shares of
Common Stock issuable pursuant to any outstanding Convertible
Securities to increase as a result of any antidilution
provisions relating thereto.
(d) Other than the Employee Stock Options listed on
Schedule 3.2(a) and the Lender Warrants, there are no
(i) outstanding options, warrants or other rights
exercisable for the purchase of any shares of Capital Stock or
Convertible Securities (Stock Purchase Rights),
(ii) stock appreciation rights, performance stock awards or
other employee incentive awards the value of which is determined
by reference to the value of the Common Stock or
(iii) other agreements or commitments obligating the
Company to issue, sell, repurchase, redeem or otherwise acquire
any shares of Capital Stock, Convertible Securities or Stock
Purchase Rights. Except as set forth in Schedule 3.2(c),
the issuance of the Purchased Shares as contemplated herein will
not cause the number of shares of
A-5
Common Stock issuable pursuant to the Employee Stock Options or
the Lender Warrants to increase as a result of any antidilution
provisions relating thereto.
(e) There are no authorized or outstanding bonds,
debentures, notes or other obligations of the Company the
holders of which have the right to vote with the holders of
Common Stock on any matter. Except as disclosed on
Schedule 3.2(d), the Company does not have in effect any
dividend reinvestment plans or employee stock purchase plans.
(f) All outstanding shares of Capital Stock (including any
outstanding Restricted Stock) have been duly authorized and
validly issued and are fully-paid and nonassessable and have
been offered and issued without violation of any preemptive
rights of any Person or any applicable securities laws. All
outstanding Employee Stock Options and Lender Warrants have been
issued without violation of any applicable securities laws, and
all shares of Common Stock issued upon exercise thereof will
have been, upon such issuance, duly authorized and validly
issued without violation of any preemptive rights of any Person
and will be fully-paid and nonassessable.
(g) There are no voting trusts, proxies or other agreements
to which the Company is a party or by which it is bound with
respect to the voting of any shares of Capital Stock affecting
the voting of any shares of Capital Stock.
Section 3.3 Subsidiaries
and Joint Ventures.
(a) Each Subsidiary is a Business Entity duly organized,
validly existing and in good standing under the laws of its
jurisdiction of formation. A true and correct copy of each
Organizational Document of each significant
subsidiary of the Company (within the meaning of
Rule 1-02
of
Regulation S-X
under the Exchange Act), as amended through the date hereof, has
either been filed as an exhibit to the SEC Reports or otherwise
made available to the Investor. Each Subsidiary has all
requisite power and authority to carry on the businesses in
which it is engaged (and as described in the SEC Reports) and to
own or lease its properties. Each Subsidiary is duly qualified
to conduct business as a foreign Business Entity and is in good
standing under the laws of each jurisdiction in which the nature
of its businesses or the ownership or leasing of its properties
requires such qualification, other than where the failure to be
so qualified would reasonably be expected, individually or in
the aggregate, to have a Company Material Adverse Effect. No
Subsidiary is in default under or in violation of any provision
of any of its Organizational Documents, and no such defaults or
violations have occurred in the past which would reasonably be
expected, individually or in the aggregate, to have a Company
Material Adverse Effect.
(b) Except as disclosed in Schedule 3.3(b), all the
outstanding shares of capital stock or equity interests in each
of the Subsidiaries are beneficially owned by the Company,
directly or indirectly, free and clear of any restrictions on
transfer (other than restrictions under the Securities Act or
other applicable securities laws), have been duly authorized and
validly issued and are fully-paid and nonassessable, and there
are no outstanding options, warrants or other rights to
purchase, or any preemptive rights or other rights to subscribe
for or to purchase, or any securities or obligations convertible
into or exercisable or exchangeable for, or any contracts or
commitments to issue or sell, shares of capital stock of any
Subsidiary or any such options, warrants, rights, convertible or
exchangeable or exercisable securities.
(c) Neither the Company nor any Subsidiary has any equity
investments or interests in any Person other than (i) the
Subsidiaries, (ii) the interests of the Company and the
Subsidiaries in the JV Entities and (iii) securities
positions maintained by the Companys broker-dealer
Subsidiaries in the ordinary course of their securities
businesses.
(d) The Company has heretofore made available to the
Investor true and correct copies of each agreement, instrument
or document governing the organization, operation or management
of the FATV JV Entities.
Section 3.4 Authorization;
Execution and Enforceability.
(a) Subject to the Charter Amendment becoming effective,
the Company has all requisite corporate power and authority to
execute, deliver and perform this Agreement and the Registration
Rights Agreement and to consummate the Transactions. The Board
has determined, based on the unanimous recommendation of the
Special Committee, that the consummation of the Transactions is
deemed advisable and in the best interests of the shareholders
of the Company. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the
consummation of the Transactions has been duly authorized by the
Board and, other than
A-6
the Shareholder Approvals, no further corporate action on the
part of the Company is required in connection therewith.
(b) This Agreement has been duly executed and delivered by
the Company and constitutes, and, upon execution and delivery
thereof as contemplated herein, the Registration Rights
Agreement will have been duly executed and delivered by the
Company and will constitute, a legal, valid and binding
obligation of the Company enforceable against it in accordance
with its terms.
Section 3.5 Validity
of Purchased Shares.
Upon issuance to the Purchasers as contemplated herein, the
Purchased Shares (including the attached Rights) will have been
duly authorized and validly issued without violation of the
preemptive rights of any Person and will be fully-paid and
nonassessable, free and clear of any Liens.
Section 3.6 No
Conflicts; Consents and Approvals.
(a) Subject to obtaining Shareholder Approvals and the
filing of the Charter Amendment, and except as disclosed in
Schedule 3.6, neither the execution, delivery or
performance of this Agreement or the Registration Rights
Agreement by the Company nor the consummation of any of the
Transactions will (a) conflict with or violate any
provision of the certificate of incorporation or by-laws of the
Company or any Organizational Document of any of the
Subsidiaries; (b) result in a breach of, constitute (with
or without due notice or lapse of time or both) a default under,
result in the acceleration of, create in any party any right to
accelerate, terminate, modify or cancel, or require any notice,
consent or waiver under, any Contractual Obligation or any
Requirement of Law applicable to the Company or any of the
Subsidiaries or any of their respective properties and assets,
other than such breaches, defaults, accelerations, terminations,
modifications, cancellations, notices, consents or waivers as
would not reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect;
(c) result in the imposition of any Lien upon any material
properties or assets of the Company or any of the Subsidiaries,
which Lien would materially detract from the value or materially
interfere with the use of such properties or assets,
(d) result in the Company or any Subsidiary being required
to redeem, repurchase or otherwise acquire any outstanding
equity or debt interests, securities or obligations in the
Company or any of the Subsidiaries or any options or other
rights exercisable for any of same or (e) cause the
accelerated vesting of any Employee Stock Options or Restricted
Stock Awards.
(b) Except as set forth in Schedule 3.6, neither the
Company nor any of the Subsidiaries is required to obtain any
consent, authorization or approval of, or make any filing,
notification or registration with, any Governmental Authority or
any self regulatory organization in order for the Company to
execute, deliver and perform this Agreement and the Registration
Rights Agreement and to consummate the Transactions
(Company Approvals), other than filing the Proxy
Statement with the SEC. The Company has no reason to believe
that any of the consents, authorizations or approvals listed on
Schedule 3.6 will not be received or will be received with
conditions, limitations or restrictions that would reasonably be
expected, individually or in the aggregate, to have a Company
Material Adverse Effect.
(c) Except as set forth in Schedule 3.6, no
Contractual Consents are required to be obtained under any
Contractual Obligation applicable to the Company or any
Subsidiary or, to the Knowledge of the Company, any Associated
Person thereof in connection with the execution, delivery or
performance of this Agreement or the Registration Rights
Agreement or the consummation of any of the Transactions which
if not obtained would reasonably be expected, individually or in
the aggregate to have a Company Material Adverse Effect
(Company Contractual Consents).
Section 3.7 SEC
Reports; Financial Statements.
(a) Except as set forth in Schedule 3.7, the Company
has timely filed all reports, schedules, forms, statements and
other documents required to be filed by it since
December 31, 2005 with the SEC pursuant to the reporting
requirements of the Exchange Act (all the foregoing filed prior
to the date hereof and all exhibits included or incorporated by
reference therein and financial statements and schedules thereto
and documents included or incorporated by reference therein
being sometimes hereinafter collectively referred to as the
SEC Reports). As of their respective dates, the SEC
Reports complied in all material respects with the requirements
of the Exchange Act
A-7
applicable to the SEC Reports, and none of the SEC Reports, at
the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading.
(b) As of their respective dates, except as set forth
therein or in the notes thereto, the financial statements
contained in the SEC Reports and the related notes (the
Financial Statements) complied as to form in all
material respects with all applicable accounting requirements
and the published rules and regulations of the SEC with respect
thereto. The Financial Statements: (i) were prepared in
accordance with accounting principles generally accepted in the
United States (GAAP), consistently applied during
the periods involved (except (i) as may be otherwise
indicated in the notes thereto or (ii) in the case of
unaudited interim statements, to the extent that they may not
include footnotes, may be condensed or summary statements or may
conform to the SECs rules and instructions for Reports on
Form 10-Q),
(ii) fairly present in all material respects the
consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited
statements, to normal and recurring year-end audit adjustments)
and (iii) are in all material respects in accordance with
the books of account and records of the Company and its
consolidated subsidiaries (except as may be otherwise noted
therein).
Section 3.8 Sarbanes-Oxley;
Disclosure and Internal Controls.
(a) The Company is in compliance in all material respects
with all of the provisions of the Sarbanes-Oxley Act of 2002
(Sarbanes-Oxley) that are applicable to it or any of
the Subsidiaries.
(b) The Company has established and maintains disclosure
controls and procedures as defined in
Rule 13a-15
under the Exchange Act. Such disclosure controls and procedures
are designed to ensure that material information relating to the
Company and the Subsidiaries is made known to the Companys
principal executive officer and its principal financial officer
by others within those entities, particularly during the periods
in which the periodic reports required to be filed under the
Exchange Act are being prepared. Such disclosure controls and
procedures are effective in all material respects to timely
alert the Companys principal executive officer and
principal financial officer to material information required to
be included in the Companys reports required to be filed
under Exchange Act.
(c) The Company and its consolidated subsidiaries have
established and maintained a system of internal control over
financial reporting (within the meaning of
Rule 13a-15
under the Exchange Act) (internal controls). Such
internal controls are sufficient to provide reasonable assurance
regarding the reliability of the Companys financial
reporting and the preparation of the Companys financial
statements for external purposes in accordance with GAAP. The
Companys certifying officers have evaluated the
effectiveness of the Companys internal controls as of the
end of the period covered by the most recently filed quarterly
or annual periodic report under the Exchange Act (the
Evaluation Date). The Company presented in its most
recently filed quarterly or annual periodic report under the
Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures
based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no significant changes in the
Companys internal controls over financial reporting (as
defined in Item 307(b) of
Regulation S-K
under the Exchange Act) or, to the Knowledge of the Company, in
other factors that could significantly affect such internal
controls.
Section 3.9 Absence
of Certain Changes.
Since December 31, 2006, (a) there has not been any
Company Material Adverse Effect or any changes, events or
developments that would reasonably be expected, individually or
in the aggregate, to have a Company Material Adverse Effect, and
(b) the Company and the Subsidiaries have conducted their
respective businesses only in the ordinary course and in
conformity with past practice.
Section 3.10 No
Undisclosed Liabilities.
Neither the Company nor any of the Subsidiaries has any
liability (whether known or unknown, whether absolute or
contingent, whether liquidated or unliquidated, whether due or
to become due), except for the following: (a) liabilities
reflected in or reserved for in the December Balance Sheet,
(b) liabilities that have arisen since December 31,
2006 in the ordinary course of the businesses of the Company and
the Subsidiaries consistent with
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past practice, (c) liabilities incurred in the ordinary
course of the businesses of the Company and the Subsidiaries
consistent with past practice that would not required under GAAP
to be reflected in an audited consolidated balance sheet of the
Company and its consolidated subsidiaries and that are not in
the aggregate material, (d) liabilities that would not
reasonably be expected, individually or in the aggregate, to
have a Company Material Adverse Effect, (e) liabilities
incurred in connection with the Transactions or
(f) liabilities discharged in the ordinary course of the
businesses of the Company and the Subsidiaries consistent with
past practice prior to the date of this Agreement.
Section 3.11 Litigation.
There is no Action or Proceeding to which the Company or any of
the Subsidiaries is a party (either as a plaintiff or defendant)
pending or, to the Knowledge of the Company, threatened before
any Governmental Authority or self-regulatory organization
(i) that challenges the validity or propriety of any of the
Transactions or (ii) if determined adversely to the Company
or any Subsidiary would reasonably be expected, individually or
in the aggregate, to have a Company Material Adverse Effect.
Except as would not reasonably be expected, individually or in
the aggregate, to have a Company Material Adverse Effect,
neither the Company nor any of the Subsidiaries, nor, to the
Knowledge of the Company, any of their respective officers,
directors, employees or Associated Persons, is or has been the
subject of any Action or Proceeding involving a claim of
violation or liability under federal, state or foreign
securities or insurance laws or the rules, by-laws, or
constitution of any self-regulatory organization, or a claim of
breach of fiduciary duty relating to the Company or any of the
Subsidiaries or has been permanently or temporarily enjoined by
any order, judgment or decree of any Governmental Authority or
self-regulatory organization from engaging in or continuing to
conduct any of the businesses of the Company or any Subsidiary.
Except as would not reasonably be expected, individually or in
the aggregate, to have a Company Material Adverse Effect, there
has not been, and to the Knowledge of the Company, there is not
pending or contemplated, any investigation by any Governmental
Authority or self-regulatory organization involving the Company
or any of the Subsidiaries or any officer, director, employee or
Associated Person thereof. The Company has not received a stop
order or other order suspending the effectiveness of any
registration statement filed by the Company under the Exchange
Act or the Securities Act and, to the Knowledge of the Company,
the SEC has not issued any such order. No order, judgment or
decree of any Governmental Authority or self-regulatory
organization has been issued in any Action or Proceeding to
which the Company or any of the Subsidiaries is or was a party
or, to the Knowledge of the Company, in any other Action or
Proceeding except as would not reasonably be expected,
individually or in the aggregate, to have a Company Material
Adverse Effect.
Section 3.12 Intellectual
Property Rights.
Except as would not reasonably be expected, individually or in
the aggregate, to have a Company Material Adverse Effect, the
Company and the Subsidiaries own or possess, or will be able to
obtain on reasonable terms, licenses or sufficient rights to use
all patents, patent applications, patent rights, inventions,
know-how, trade secrets, trademarks, trademark applications,
service marks, service names, trade names and copyrights
necessary to enable them to conduct their businesses as
currently conducted (Intellectual Property). Neither
the Company nor any of the Subsidiaries has infringed the
intellectual property rights of third parties, and no third
party, to the Knowledge of the Company, is infringing the
Intellectual Property, in each case, where such infringement
would reasonably be expected, individually or in the aggregate,
to result in a Company Material Adverse Effect. Other than the
DEPFA Purchase Agreement, there are no material options or
licenses relating to the Intellectual Property, nor is the
Company or any of the Subsidiaries bound by or a party to any
material options or licenses relating to the patents, patent
applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks,
service names, trade names and copyrights of any other Person.
There is no material claim or proceeding pending or, to the
Knowledge of the Company, threatened that challenges the right
of the Company or any of the Subsidiaries with respect to any of
the Intellectual Property.
Section 3.13 Exchange
Listing.
The Common Stock is listed on the NASDAQ Global Market and, to
the Knowledge of the Company, there are no proceedings to revoke
or suspend such listing. The Company is in compliance with the
requirements of the NASDAQ Global Market for continued listing
of the Common Stock thereon and any other NASDAQ Global Market
listing and maintenance requirements. Trading in the Common
Stock has not been suspended by the SEC or the NASDAQ Global
Market.
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Section 3.14 Tax
Matters.
(a) Except as otherwise set forth in Schedule 3.14,
(i) the Company and each of its Subsidiaries have filed all
material Tax Returns required to be filed, and such Tax Returns
are true and correct in all material respects, and the Company
and its Subsidiaries are not in default in the payment of any
Taxes (whether or not shown on such Tax Returns), other than
those being contested in good faith and for which adequate
reserves have been provided or those currently payable without
interest which were payable pursuant to said Tax Returns or any
assessments with respect thereto, (ii) neither the Company
nor any of its material Subsidiaries is currently the
beneficiary of any extension of time within which to file any
material Tax Return or has waived any statute of limitations in
respect of any material Taxes which waiver is currently in
effect, (iii) all Tax Returns referred to in
clause (i) have been examined by the relevant Taxing
Authority or the period for assessment of the Taxes in respect
of which such Tax Returns were required to be filed has expired,
(iv) there is no material audit, assessment or proceeding
pending or threatened in writing with respect to Taxes of the
Company or any of the Subsidiaries, (v) the December
Balance Sheet reflects an adequate reserve for all Taxes payable
by the Company and its consolidated subsidiaries for all taxable
periods and portions thereof through December 31, 2006, and
(vi) each of the Company and its material Subsidiaries has
filed Tax Returns related to income, franchise or other similar
taxes in each state and local jurisdiction in which it is
required to do so.
(b) Except for any group, the members of which consist
solely of the Company and the Subsidiaries as of the Closing
Date, neither the Company nor any of the Subsidiaries has been a
member of any group of corporations filing a consolidated return
for United States federal income tax purposes, and neither the
Company nor any of the Subsidiaries has any liability for Taxes
of any Person (other than the Company and the Subsidiaries)
under Treasury
Regulation Section 1.1502-6
(or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract or otherwise.
(c) Neither the Company nor any Subsidiary has ever been or
is currently United States real property holding
corporation within the meaning of Section 897(c)(2)
of the Code.
(d) Neither the Company nor any of the Subsidiaries have
been a party to any reportable transaction within
the meaning of Treasury
Regulation Section 1.6011-4(b)(1).
(e) Neither the Company nor any of the Subsidiaries has
constituted either a distributing corporation or a
controlled corporation in a distribution of stock
qualifying for tax-free treatment under Section 355 of the
Code (i) in the two years prior to the date of this
Agreement or (ii) in a distribution which could otherwise
constitute part of a plan or series of related
transactions (within the meaning of Section 355(e) of
the Code) in conjunction with the Investment.
(f) No payment or other benefit, and no acceleration of the
vesting of any options, payments or other benefits, will, as a
direct or indirect result of the Transactions, be (or under
Section 280G of the Code or the related Treasury
Regulations be presumed to be) an excess parachute
payment to a disqualified individual as those
terms are defined in Section 280G of the Code and the
Treasury Regulations, without regard to whether such payment or
acceleration is reasonable compensation for personal services
performed or to be performed in the future or any amount that
will not be deductible as a result of Section 162(m) of the
Code (or any corresponding provision of state, local or foreign
law).
(g) Neither the Companys net operating loss
carryforwards for federal income tax purposes nor the
Companys net operating loss carryforwards for state income
tax purposes are subject to any limitations (other than as a
result of the consummation of the Transactions) on their
utilization (including under Section 382 of the Code,
similar states or local Tax provisions, and the rules applicable
to separate return limitation years) under
applicable Tax law.
(h) Except as disclosed in Schedule 3.14, during the
three-year period ending on the date hereof there have not been,
and during the three-year period ending on the Closing Date
there will not have been (other than as a result of the
consummation of the Transactions), any ownership shifts
involving a 5-percent shareholder (within the
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meaning of such term for the purposes of Section 382(g) of
the Code), or any equity structure shifts (within
the meaning of Section 382(g) of the Code) with respect to
the Company.
(i) Neither the Company nor any of the Subsidiaries is a
party to or is bound by any Tax allocation, sharing or similar
agreement with any other Person.
(j) Except as disclosed in Schedule 3.14, neither the
Company nor any of the Subsidiaries will be required to include
any item of income in, or exclude any item of deduction from,
taxable income for any taxable period (or portion thereof)
ending after the Closing Date as a result of any (A) change
in method of accounting for a taxable period ending on or prior
to the Closing Date, (B) closing agreement as
described in Section 7121 of the Code (or any similar
provision of state, local or foreign law) executed on or prior
to the Closing Date, (C) material installment sale or
material open transaction disposition made on or prior to the
Closing Date or (D) material prepaid amount received on or
prior to Closing.
(k) Since December 31, 2006, neither the Company nor
any Subsidiary has engaged in any transaction, or taken any
other action, other than in the ordinary course of business
consistent with past practice, that would give rise to any
material Tax liability of the Company or any Subsidiary.
Section 3.15 Tangible
Assets.
The Company and each of the Subsidiaries has good and marketable
title to, or has valid rights to lease or otherwise use, all
items of real and tangible personal property that are material
to their respective businesses, free and clear of all Liens
other than Liens (i) that do not materially interfere with
the use of such property or (ii) would not reasonably be
expected, individually or in the aggregate, to have a Company
Material Adverse Effect.
Section 3.16 Real
Property.
(a) The Company does not own any real property.
(b) Schedule 3.16 lists all material real property
leased or subleased to the Company or its Subsidiaries,
indicating, in each case, the term of the lease and any
extension and expansion options and the rent payable under such
lease (Material Leases). A true and correct copy of
each Material Lease has either been filed as an exhibit to the
SEC Reports or otherwise made available by the Company to the
Investor.
(c) With respect to each Material Lease: (i) the lease
or sublease is legal, valid, binding, enforceable and in full
force and effect; (ii) neither the Company nor any
Subsidiary party to such lease or sublease, nor, to the
Knowledge of the Company, any other party to such lease or
sublease, is in material breach or default thereunder, and no
event has occurred which, with notice or lapse of time, would
constitute a material breach or default by the Company or any of
such Subsidiaries or, to the Knowledge of the Company, by any
such other party, thereunder or permit termination, modification
or acceleration thereunder; (iii) to the Knowledge of the
Company, there are no material disputes, oral agreements or
forbearance programs in effect as to the lease or sublease; and
(iv) neither the Company nor any of the Subsidiaries has
assigned, transferred, conveyed, mortgaged, deeded in trust or
encumbered any interest in the leasehold or subleasehold
thereunder.
Section 3.17 Insurance.
The Company and each of the Subsidiaries is insured by insurers
of recognized financial responsibility against such losses and
risks and in such amounts as the Company believes are prudent
and customary for a company in the businesses and locations in
which the Company or such Subsidiary, as the case may be,
operates. All such policies are in full force and effect,
neither the Company nor any of the Subsidiaries is in material
default, whether as to the payment of premium or otherwise,
under any such policy. No notices of cancellation or, to the
Knowledge of the Company, indication of an intention to cancel
or not to renew any material insurance policy has been received
by the Company or any of the Subsidiaries. Since
December 31, 2005, neither the Company nor any of the
Subsidiaries has been denied insurance, nor has any prospective
or actual carrier or underwriting board recommended or required
material expenditures by the Company or any of the Subsidiaries
in order to obtain insurance.
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Section 3.18 Contracts.
(a) All agreements that are required to be filed as
exhibits to the SEC Reports under Item 601 of
Regulation S-K
have been so filed.
(b) Except as would not reasonably be expected,
individually or in the aggregate, to result in a Company
Material Adverse Effect: (i) each Company Contract is in
full force and effect and represents a valid, binding and
enforceable obligation of the Company
and/or any
Subsidiaries party thereto and, to the Knowledge of the Company,
of each other party thereto and (ii) neither the Company
nor any of the Subsidiaries nor, to the Knowledge of the
Company, any other party is in breach or default under any
Company Contract, and no event has occurred which with notice or
lapse of time would constitute a breach or default by the
Company or any of the Subsidiaries or, to the Knowledge of the
Company, by any such other party, or permit termination,
modification or acceleration under any Company Contract.
Section 3.19 Permits
and Regulatory Matters.
(a) The Company and its Subsidiaries and, to the Knowledge
of the Company, their respective officers, directors, employees,
and Associated Persons hold all licenses, permits, certificates,
franchises, ordinances, registrations, qualifications, or other
rights, privileges, applications and authorizations filed with,
granted or issued by, or entered by any Governmental Authority
or self-regulatory organization that are required for the
conduct of the businesses of the Company and the Subsidiaries as
currently being conducted, each as amended through the date
hereof (collectively, the Company Permits), other
than such licenses, permits, certificates, franchises,
ordinances, registrations, qualifications, or other rights,
privileges, applications and authorizations the absence of which
would not reasonably be expected, individually or in the
aggregate to have a Company Material Adverse Effect.
(b) The Company Permits are in full force and effect and
have not been pledged or otherwise encumbered, assigned,
suspended, modified, conditioned, or restricted in any material
adverse respect, canceled or revoked, and the Company and each
of the Subsidiaries, and, to the Knowledge of the Company, each
of their respective officers, directors, employees and
Associated Persons thereof, have operated, and are operating, in
compliance with all terms thereof or any renewals thereof
applicable to them, and with all Requirements of Law which apply
to the conduct of the businesses thereof, and are in good
standing in respect of all such Company Permits, other than in
any case where the failure to so comply or operate or to be in
good standing would not reasonably be expected, individually or
in the aggregate, to have a Company Material Adverse Effect. To
the Knowledge of the Company, no event has occurred, or notice
received, with respect to any of the Company Permits which
allows or results in, or after notice or lapse of time or both
would result in, revocation, suspension, or termination,
modification, or the imposition of any condition or restriction,
thereof or would result in any other material impairment of the
rights of the holder of any such Company Permit other than as
would not be reasonably expected, individually or in the
aggregate, to have a Company Material Adverse Effect.
(c) To the Knowledge of the Company, no Governmental
Authority or self-regulatory organization has initiated any
proceeding, investigation, or examination into the business or
operations of the Company or any Subsidiary, or any officer,
director, employee or Associated Persons thereof, or has
instituted any proceeding seeking to revoke, cancel or limit any
Company Permit, and neither the Company or any Subsidiary, nor
any officer, director, employee or Associated Person thereof has
received any notice of any unresolved material violation or
exception by any Governmental Authority or self-regulatory
organization with respect to any report or statement relating to
any examination of the Company or any Subsidiary, except in any
case as would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect. Without limiting
the generality of the foregoing, neither the Company nor any
Subsidiary nor, to the Knowledge of the Company, any of their
respective officers, directors, employees, or Associated Persons
or persons performing similar duties has been enjoined,
indicted, convicted or made the subject of a disciplinary
proceeding, censure, consent decree, cease and desist or
administrative order on account of any violation of the Exchange
Act, the Commodity Exchange Act, the Investment Company Act of
1940, the Investment Advisers Act of 1940, state securities law
or applicable foreign law or regulation.
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(d) Neither the Company or any Subsidiary, nor, to the
Knowledge of the Company, any officer, director, employee, or
Associated Person thereof is a party or subject to any
agreement, consent, decree or order or other understanding or
arrangement with, or any directive of any Government Authority
or self-regulatory organization which imposes any material
restrictions on or otherwise affects in any material way the
conduct of any of the businesses of the Company and its
Subsidiaries.
Section 3.20 Employees;
Employee Benefits.
(a) There are no collective bargaining agreements to which
the Company or any of the Subsidiaries is a party. Except as
would not be reasonably expected, individually or in the
aggregate, to have a Company Material Adverse Effect, the
Company and each Subsidiary are in compliance with all
Requirements of Law respecting employment and employment
practices, terms and conditions of employment and wages and
hours.
(b) Schedule 3.20 contains a true and complete list of
all pension plans and welfare plans as
defined in Section 3(2) and 3(1), respectively, of the
Employee Retirement Income Security Act of 1974, as amended
(ERISA), in each case applied without regard to the
exceptions from coverage contained in Sections 4(b)(4) or
4(b)(5) thereof, maintained, or contributed to, by the Company
or any of the Subsidiaries or any ERISA Affiliate of the Company
or any Subsidiary (Employee Benefit Plans). Each
Employee Benefit Plan has been administered in accordance with
its terms in all material respects, and the Company and each of
the Subsidiaries and their respective ERISA Affiliates has in
all material respects met its obligations (if any) with respect
to each Employee Benefit Plan and has made all required
contributions (if any) thereto. The Company and the Subsidiaries
and all Employee Benefit Plans are in compliance in all material
respects with the currently applicable provisions (if any) of
ERISA, the Code and other applicable federal, state and foreign
laws and the regulations thereunder. None of the Company, the
Subsidiaries or their respective ERISA Affiliates has ever
maintained a Employee Benefit Plan subject to Section 412
of the Code, Part 3 of Subtitle B of Title I of ERISA
or Title IV of ERISA. At no time has the Company or any of
the Subsidiaries or, to the Knowledge of the Company, any of
their respective ERISA Affiliates been obligated to contribute
to any multiemployer plan (as defined in
Section 4001(a)(3) of ERISA) that is subject to
Title IV of ERISA.
Section 3.21 Compliance
with Law.
The Company and each of its Subsidiaries and the conduct and
operation of their respective businesses is and has been in
material compliance with each Requirement of Law that
(a) affects or relates to this Agreement or the
Registration Rights Agreement or any of the Transactions or
(b) is applicable to the Company or its Subsidiaries or
their respective businesses, other than where the failure to be
or to have been in compliance would not reasonably be expected,
individually or in the aggregate, to have a Company Material
Adverse Effect.
Section 3.22 Environmental
Matters.
To the Knowledge of the Company, neither the Company nor any
Subsidiary, nor any properties operated by the Company or any
Subsidiary is in violation of, or liable under or in connection
with, any Environmental Law that would reasonably be expected,
individually or in the aggregate, to have a Company Material
Adverse Effect. There are no actions, suits or proceedings, or
demands (including demand letters or requests for information
from any environmental agency) of, to the Knowledge of the
Company, investigations or claims instituted or pending, or to
the Knowledge of the Company, threatened, relating to the
liability of the Company or any Subsidiary under any
Environmental Law that would reasonably be expected,
individually or in the aggregate, to have a Company Material
Adverse Effect.
Section 3.23 Transactions
with Affiliates.
No transactions, or series of related transactions, are
currently proposed to which the Company or any of the
Subsidiaries would be a party that would be required to be
disclosed under Item 404 of
Regulation S-K
promulgated under the Securities Act.
Section 3.24 Investment
Company
The Company is not, and after giving effect to the Transactions
will not be, an investment company as such term is
defined in the Investment Company Act of 1940, as amended.
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Section 3.25 Corrupt
Practices.
Neither the Company nor any Subsidiary, nor to the Knowledge of
the Company any director, officer, employee, agent or other
Person acting on behalf of the Company or any Subsidiary has, in
the course of his or its actions for, or on behalf of the
Company or any of the Subsidiaries (i) used any corporate
funds for any unlawful contribution gift, entertainment or other
unlawful expense relating to political activity; (ii) made
any direct or indirect unlawful payment to any foreign or
domestic government official or employees from corporate funds;
(iii) violated or is in violation of in any material
respect any provision of the U.S. Foreign Corrupt Practices
Act of 1977, as amended, or (iv) made any unlawful bribe,
rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or
employee.
Section 3.26 Application
of Takeover Protections.
(a) The Board has taken all action necessary pursuant to
Section 912 of the NYBCL to approve for purposes of
Section 912 the purchase of the Purchased Shares by the
Purchasers prior to the date hereof. Other than Section 912
of the NYBCL, no state or foreign takeover or similar statute or
regulation in any jurisdiction in which the Company does
business applies or purports to apply to this Agreement or any
of the Transactions.
(b) The Company has taken all actions necessary under the
Rights Agreement to cause the Rights Agreement to be rendered
inapplicable to this Agreement and the Transactions and for the
Purchasers to be deemed not to be Acquiring Persons
(as defined in the Rights Agreement).
Section 3.27 Certain
Information.
None of the information supplied by the Company or its
Subsidiaries for inclusion or incorporation by reference in any
document to be filed with the SEC or any other Governmental
Authority in connection with the Transactions, at the respective
times filed with the SEC or any other Governmental Authority,
will contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances
under which they were made, not misleading.
Section 3.28 Securities
Law Compliance.
Assuming the accuracy of the Investors representations and
warranties contained in Article IV (any the corresponding
representations made by any Co-Investors in the applicable
Co-Investor Joinder Agreements), the offer, sale and issuance of
the Purchased Shares hereunder is in compliance with
Section 4(2) of the Securities Act and is exempt from the
registration and prospectus delivery requirements of the
Securities Act and all applicable state securities laws. Neither
the Company nor any agent of the Company has offered the
Purchased Shares by any form of general solicitation or general
advertising, including any advertisement, article, notice or
other communication published in any newspaper, magazine or
similar media or broadcast over television or radio or any
seminar or meeting whose attendees have been invited by any
general solicitation or general advertising.
Section 3.29 Brokers.
Except as heretofore disclosed by the Company to the Investor,
no broker, investment banker or other Person is entitled to any
brokers, finders or other similar fee or commission
in connection with the execution an delivery of this Agreement
or the Registration Rights Agreement or the consummation of any
of the Transactions based upon arrangements made by or on behalf
of the Company, and the Company shall indemnify and hold the
Purchasers harmless against any claim for any such fee or
commission based on any such arrangements.
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ARTICLE IV
REPRESENTATIONS
AND WARRANTIES OF THE INVESTOR
The Investor hereby represents and warrants to the Company,
except in each case as specifically set forth in the Investor
Disclosure Letter, as follows:
Section 4.1 Organization,
Standing and Power.
The Investor is a limited liability company duly organized,
validly existing and in good standing under the laws of the
State of Delaware. The Investor has the necessary power and
authority to execute, deliver and perform this Agreement and the
Registration Rights Agreement.
Section 4.2 Authorization;
Execution and Enforceability.
The execution, delivery and performance by the Investor of this
Agreement and the Registration Rights Agreement have been duly
and validly authorized by all necessary limited liability
company action on the part of the Investor and do not require
any further authorization or consent of the Investor. This
Agreement has been duly executed and delivered by the Investor
and the Registration Rights Agreement, when executed and
delivered as contemplated herein, will have been duly executed
and delivered by the Investor, and this Agreement constitutes,
and the Registration Rights Agreement upon execution and
delivery thereof by the Investor will constitute, the legal,
valid and binding obligations of the Investor, enforceable
against the Investor in accordance with their respective terms.
Section 4.3 No
Conflict; Consents and Approvals.
(a) Neither the execution, delivery or performance of this
Agreement or the Registration Rights Agreement by the Investor
nor the consummation of any of the Transactions will
(i) conflict with or violate any provision of any
Organizational Document of the Investor or (ii) result in a
breach of, constitute (with or without due notice or lapse of
time or both) a default under, result in the acceleration of,
create in any party any right to accelerate, terminate, modify
or cancel, or require any notice, consent or waiver under, any
Contractual Obligation or any Requirement of Law applicable to
the Investor or any of its properties or assets other than a
breach, default, acceleration, right, notice, consent or waiver
that is not material.
(b) The Investor is not required to obtain any consent,
authorization or approval of, or make any filing or registration
with, any Governmental Authority or any self regulatory
organization in order for the Investor to execute, deliver and
perform this Agreement and the Registration Rights Agreement and
to consummate the Transactions (Investor Approvals).
(c) No material Contractual Consents are required to be
obtained under any Contractual Obligation applicable to the
Investor in connection with the execution, delivery or
performance of this Agreement or the Registration Rights
Agreement or the consummation of any of the Transactions.
Section 4.4 Purchase
Entirely for Own Account.
The Purchased Shares to be acquired by the Investor hereunder
will be acquired for the Investors own account, not as
nominee or agent, and not with a view to the resale or
distribution of any part thereof in violation of the Securities
Act, and the Investor has no present intention of selling,
granting any participation in, or otherwise distributing the
same in violation of the Securities Act. The Investor does not
have any agreement or understanding, whether or not legally
binding, direct or indirect, with any other Person to sell or
otherwise distribute the Purchased Shares.
Section 4.5 Investment
Experience.
The Investor acknowledges that it can bear the economic risk and
complete loss of its investment in the Purchased Shares and has
such knowledge and experience in financial or business matters
that it is capable of evaluating the merits and risks of the
investment contemplated hereby. The Investor understands that
the purchase of the Purchased Shares involves substantial risk.
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Section 4.6 Disclosure
of Information.
The Investor has undertaken substantial due diligence with
respect to the Company and has had access to copies of the SEC
Reports. Without limiting the rights of the Investor under
Section 5.1, the Investor has received such information
from the Company, and has sought such accounting, legal and tax
advice, as it has considered necessary to make an informed
decision to execute and deliver this Agreement.
Section 4.7 Restricted
Securities.
The Investor understands that the Purchased Shares will be
characterized as restricted securities under the
United States federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a
public offering and that under such laws and applicable
regulations such securities may be resold without registration
under the Securities Act only in certain limited circumstances.
The Investor understands that no United States federal or state
agency or any other government or governmental agency has passed
on or made any recommendation or endorsement of the Purchased
Shares or the fairness or suitability of the investment in the
Purchased Shares.
Section 4.8 Legends.
The Investor understands that, except as provided below and
until such time as the resale of the Purchased Shares has been
registered under the Securities Act as contemplated by the
Registration Rights Agreement, certificates evidencing the
Purchased Shares shall bear the following legends:
(a) THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OFFERED FOR SALE, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION FROM COUNSEL IN A
FORM ACCEPTABLE TO THE COMPANY AND ITS LEGAL COUNSEL
STATING THAT SUCH REGISTRATION IS NOT REQUIRED.
(b) If required by the authorities of any state in
connection with the issuance or sale of the Purchased Shares,
the legend required by such state authority.
Section 4.9 Accredited
Investor.
The Investor is an accredited investor as defined in
Rule 501(a) of Regulation D, as amended, under the
Securities Act. The Investors principal place of business
is in New York, New York.
Section 4.10 No
General Solicitation.
The Investor did not learn of the opportunity to purchase the
Purchased Shares by means of any form of general or public
solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any
advertisement, article, notice or other communication published
in any newspaper, magazine, or similar media, or broadcast over
television or radio, or (ii) any seminar or meeting to
which the Investor was invited by any of the foregoing means of
communications.
Section 4.11 Availability
of Funds.
The Investor has delivered to the Company a true and complete
copy of the commitment letter of even date herewith between the
Investor and MatlinPatterson Global Opportunities Partners II,
L.P and MatlinPatterson Global Opportunities Partners (Cayman)
II, L.P. (the Financing Commitment), attached hereto
as Exhibit E, pursuant to which MatlinPatterson Global
Opportunities Partners II, L.P and MatlinPatterson Global
Opportunities Partners (Cayman) II, L.P. have respectively
agreed to contribute or lend the amounts described therein to
the Investor (the Financings). The Financing
Commitment has not been amended or modified and the respective
commitments contained in the Financing Commitments have not been
withdrawn or rescinded in any respect. The Financing Commitment
is in full force and effect. There are no conditions precedent
or other contingencies related to the funding of the full
amounts of the Financings, other than the satisfaction of the
conditions set forth in this Agreement to the obligations of the
Purchasers to consummate the Transactions. The aggregate
proceeds to be
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disbursed pursuant to the Financing Commitment will be
sufficient for the Investor to pay the Net Purchase Price on the
Closing Date. Subject to satisfaction of the conditions set
forth in this Agreement to the conditions of the Purchasers to
consummate the Transactions, as of the date of this Agreement,
the Investor does not have any reason to believe that the
Financings will not be available to the Investor on the Closing
Date.
Section 4.12 Certain
Information.
None of the information supplied by the Investor for inclusion
or incorporation by reference in any document to be filed with
the SEC or any other Governmental Authority in connection with
the Transactions, at the respective times filed with the SEC or
any other Governmental Authority, will contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading.
Section 4.13 Brokers.
Except as heretofore been disclosed to the Company by the
Investor, no broker, investment banker or other Person is
entitled to any brokers, finders or other similar
fee or commission in connection with the execution an delivery
of this Agreement or the Registration Rights Agreement or the
consummation of any of the Transactions based upon arrangements
made by or on behalf of the Investor, and the Investor shall
indemnify and hold the Company harmless against any claim for
any such fee or commission based on any such arrangements.
Section 4.14 Tax
Matters.
With respect to tax considerations involved in this investment,
other than the representations and warranties of the Company set
forth in Section 3.14, the Investor is not relying on the
Company (or any agent or representative of the Company). The
Investor has carefully considered and has, to the extent the
Investor believes such discussion necessary, discussed with the
Investors tax advisers the suitability of an investment in
the Purchased Shares for the Investors particular tax
situation.
ARTICLE V
COVENANTS OF
THE COMPANY
Section 5.1 Access
to Information; Reporting.
(a) Between the date hereof and the Closing Date, the
Company shall afford the officers, employees and authorized
representatives of the Purchasers (including independent public
accountants and attorneys) reasonable access during normal
business hours to the offices, properties, employees and
business and financial records (including computer files,
retrieval programs and similar documentation) of the Company and
the Subsidiaries, all to the extent reasonably requested by the
Purchasers. The Purchasers agree that such investigation shall
be conducted in such a manner as not to interfere unreasonably
with the operations of the Company and the Subsidiaries. No
investigation made by the Purchasers or their representatives
hereunder shall affect the representations and warranties of the
Company hereunder.
(b) Without limiting the generality of Section 5.1(a)
above, within a reasonable time after the end of each month
ending between the date of this Agreement and the Closing Date,
the Company shall furnish to the Investor a report setting forth
such financial and operating information with respect to the
Company and the Subsidiaries for such month as the Investor may
reasonably request.
Section 5.2 Preparation
of Proxy Statement; Shareholder Meeting.
(a) As soon as practicable after the date hereof, the
Company shall prepare and shall file with the SEC a proxy
statement (the Proxy Statement) in preliminary form
or such other form, statement or report as may be required under
the federal securities laws relating to the special meeting of
the holders of Common Stock (the Shareholder
Meeting) to be held in connection with the Transactions to
obtain (i) the affirmative vote of a majority of the votes
entitled to be cast by the holders of Common Stock (the
Common Shareholders) at the Shareholder Meeting (to
the extent not already approved by the Common Shareholders at
the annual meeting of the Company contemplated to be held
between the date of this Agreement and the date of the
Shareholder Meeting) in favor of an amendment
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(the Charter Amendment) of the Companys
certificate of incorporation (A) to increase the number of
authorized shares of Common Stock from 50,000,000 to 100,000,000
and to increase the number of authorized shares of Preferred
Stock from 500,000 to 1,500,000, (B) to change the name of
the Company to such name as the Investor shall designate and
(C) to limit the liability of the directors of the Company
to the extent permitted under Section 402(b) of the NYBCL,
all in accordance with applicable law and the rules and
regulations of the NASDAQ Global Market (the Amendment
Approval), and (ii) the affirmative vote of a
majority of the votes cast by the Common Shareholders at the
Shareholder Meeting in favor of (x) the Companys
issuance of the Purchased Shares as described herein and the
resulting change in control of the Company, all in accordance
with applicable law and the rules and regulations of the NASDAQ
Global Market and (y) any other matter that must be
submitted to the Common Shareholders for approval in order to
consummate the Transactions under applicable Requirements of
Law, (the Transactions Approval and collectively
with the Amendment Approval, the Shareholder
Approvals). The Company and the Purchasers shall
reasonably cooperate with each other in the preparation of the
Proxy Statement and shall use commercially reasonable efforts to
have the Proxy Statement cleared by the SEC as promptly as
practicable after such filing. The Company shall notify the
Purchasers promptly following the receipt of any comments from
the SEC and of any request by the SEC for amendments or
supplements to the Proxy Statement or for additional information
and will supply the Purchasers with copies of all correspondence
with the SEC with respect to the Proxy Statement, and will
consult with the Purchasers and its counsel prior to making any
response to the SEC with respect thereto. The Proxy Statement
and any supplement or amendment thereto shall comply in all
material respects with all applicable Requirements of Law. If an
event occurs that is required to be set forth in an amendment or
supplement to the Proxy Statement, (A) the Company or the
Purchasers, as the case may be, shall promptly inform the other
of such event, (B) the Company shall prepare and file with
the SEC any such amendment or supplement to the Proxy Statement
and (C) the Company shall use commercially reasonable
efforts to have any such amendment or supplement cleared as
promptly as practicable after such filing. The Company agrees
that none of the information supplied by it or any of the
Subsidiaries for inclusion or incorporation by reference in the
Proxy Statement will, at the time of mailing of the Proxy
Statement to the Common Shareholders or at the time of the
Shareholder Meeting, contain any untrue statement of material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; provided, however, that the agreement contained in
this sentence shall not be applicable to any statements made or
incorporated by reference in the Proxy Statement based on
information supplied by or on behalf of the Purchasers for
inclusion or incorporation by reference therein. Each Purchaser
agrees that none of the information supplied by it for inclusion
or incorporation by reference in the Proxy Statement will, at
the date of mailing of the Proxy Statement to the Common
Shareholders or at the time of the Shareholder Meeting, contain
any untrue statement of material fact or omit to state any
material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) The Company shall as soon as practicable after the
Proxy Statement is cleared by the SEC mail the Proxy Statement
to the Common Shareholders and duly call, give notice of,
convene and hold the Shareholder Meeting for the purpose of
obtaining the Shareholder Approvals. Except as provided in the
next sentence, the Company shall use its reasonable best efforts
to obtain the Shareholder Approvals (which reasonable best
efforts shall include, without limitation, the requirement to
hire a reputable proxy solicitor) and the Board shall recommend
to its stockholders that they approve the Amendment and the
Transactions, including the issuance of the Purchased Shares in
connection therewith (the Company Recommendation),
and the Proxy Statement shall include the Company
Recommendation. Notwithstanding anything to the contrary in this
Agreement, the Board shall be permitted to (i) not
recommend to the Common Shareholders that they vote in favor of
the Shareholder Approvals, (ii) withdraw or modify in a
manner adverse to the Purchasers its recommendation to the
Common Shareholders that they vote in favor of the Shareholder
Approvals or (iii) recommend any Superior Competing
Transaction (each, a Change in Recommendation) if,
in the case of (i), (ii) or (iii), a majority of the
disinterested members of the Board determines, in their good
faith judgment and after consultation with outside legal counsel
and independent financial advisors, that the failure of the
Board to effect such Change in Recommendation would reasonably
likely be inconsistent with the directors fiduciary duties
under applicable Requirements of Law. Notwithstanding anything
to the contrary contained in this Agreement, the Company shall
not be required to hold the Shareholder Meeting if this
Agreement is terminated.
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(c) If on the date of the Shareholder Meeting or any
subsequent adjournment thereof, the Company has not received
proxies representing a sufficient number of shares of Common
Stock to pass the Shareholder Approvals, the Company may adjourn
the Shareholder Meeting.
(d) Except as permitted in paragraph (b) above or as
may be required by applicable Requirements of Law or under the
Companys certificate of incorporation or by-laws, the
Company shall not, either prior to or at the Shareholder
Meeting, put forth any matter to the Common Shareholders for
their approval other than the Shareholder Approvals, except with
the prior written consent of the Investor.
Section 5.3 No
Solicitation of Transactions.
(a) Subject to Section 5.4, from and after the date of
this Agreement until the earlier of the Closing or the
termination of this Agreement in accordance with its terms, the
Company shall not authorize or permit any of its officers,
trustees, directors, employees, agents or representatives
(including investment bankers, financial or other advisors,
attorneys, brokers, finders or other agents) (such officers,
trustees, directors, employees, agents and representatives,
collectively, Representatives) to, directly or
indirectly, (i) initiate, solicit or knowingly encourage or
facilitate (including by way of furnishing nonpublic
information) any inquiries or the making of any proposal or
offer that constitutes, or would reasonably be expected to
result in, a Competing Transaction or (ii) enter into
discussions or negotiations with, or provide any confidential
information or data to, any Person relating to a Competing
Transaction.
(b) Subject to Section 5.4, from and after the date of
this Agreement until the earlier of the Closing or the
termination of this Agreement in accordance with its terms, the
Company shall take all actions reasonably necessary to cause its
Representatives to immediately cease any discussions or
negotiations with any Person other than the Purchasers and its
Representatives with respect to, or that would reasonably be
expected to lead to, a Competing Transaction.
(c) From and after the date of this Agreement until the
earlier of the Closing or the termination of this Agreement in
accordance with its terms, the Company shall notify the
Purchasers, orally and in writing, immediately following
receipt, of material terms and conditions of any written or oral
proposal (including the identity of the parties) which the
Company or any of its Representatives may receive after the date
hereof relating to a Competing Transaction and shall keep the
Purchasers informed in all material respects and on a timely
basis as to the status of and any material developments
regarding any such proposal.
(d) For purposes of this Agreement, a Competing
Transaction means any of the following (other than the
transactions expressly provided for in and to be effected
pursuant to this Agreement): (i) any merger,
reorganization, consolidation, share exchange, business
combination, liquidation, dissolution, recapitalization or
similar transaction involving the Company; (ii) any direct
or indirect acquisition or purchase, in a single transaction or
series of related transactions, of (x) 20% or more of the
consolidated gross assets of the Company and the Subsidiaries,
taken as a whole, (y) 20% or more of any class of voting
securities of the Company or any Subsidiary (or any debt or
equity securities convertible into or exercisable or
exchangeable for such amount of voting securities) or
(z) 15% or more of any class of voting securities of the
Company or any Subsidiary (or any debt or equity securities
convertible into or exercisable or exchangeable for such amount
of voting securities) if such securities carry the right,
contractually or otherwise, to appoint or designate any member
or members of the Board; or (iii) any tender offer or
exchange offer that, if consummated, would result in any Person
or group (within the meaning of
Section 13(d)(3) of the Exchange Act) beneficially owning
20% or more of any class of voting securities of the Company.
(e) For purposes of this Agreement, a Superior
Competing Transaction means a bona fide proposal for a
Competing Transaction, which proposal was not, directly or
indirectly, the result of a breach of this Section 5.3,
made by a third party (x) on terms that the Board
determines in its good faith judgment (based on the financial
analysis and other advice of the Companys financial
advisors and the advice of outside counsel, and after giving
effect to the payment of the Reimbursable Expenses pursuant to
Section 9.1 and to the expected timing of the closing of
the proposed Competing Transaction) to be more favorable to the
shareholders of the Company than the Transactions (taking into
account any changes to the Transactions contemplated by
Section 5.4(b)), (y) which is reasonably likely to be
consummated (taking into account, among other things, all legal,
financial, regulatory and other aspects of the proposal,
including any conditions, and the identity of the offeror) and
(z) for which financing,
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to the extent required, is then fully committed or which, in the
good faith judgment of the Board (based on the advice of the
Companys financial advisers), is reasonably capable of
being timely financed by such third party.
Section 5.4 Board
Actions.
(a) Notwithstanding Section 5.3 or any other provision
of this Agreement to the contrary, following the receipt after
the date hereof by the Company of a bona fide proposal from a
Person for a Competing Transaction that the Board believes in
good faith (after consultation with outside counsel and with the
Companys financial advisors) constitutes or may reasonably
be expected to result in a Superior Competing Transaction, and
which proposal was not, directly or indirectly, the result of a
breach of Section 5.3, but only to the extent required by
the fiduciary obligations of the Board, the Board may, directly
or through any of its Representatives, (i) contact such
Person and its Representatives for the purpose of clarifying the
proposal and any material terms thereof and the capability of
consummation, so as to determine whether the proposal for a
Competing Transaction is reasonably likely to lead to a Superior
Competing Transaction and (ii) if the Board determines in
good faith following consultation with its legal and financial
advisors that such proposal for a Competing Transaction is
reasonably likely to lead to a Superior Competing Transaction,
the Board may (directly or through its Representatives)
(A) furnish non-public information with respect to the
Company and the Company Subsidiaries to the Person that made
such proposal pursuant to an appropriate confidentiality
agreement (with confidentiality terms no less restrictive in the
aggregate to the Person making such proposal than the Investor
Confidentiality Agreement) with such Person,
(B) participate in discussions and negotiations with such
Person regarding such proposal and (C) subject to
Section 5.4(b), following receipt of a proposal for a
Competing Transaction that the Board determines in good faith
constitutes a Superior Competing Transaction, but prior to the
Company Stockholder Approval, terminate this Agreement pursuant
to, and subject to compliance with, Sections 9.1(f) and
8.2(c). Nothing in this Agreement shall prevent the Board from
(1) complying with
Rule 14d-9
or
Rule 14e-2(a)
promulgated under the Exchange Act with respect to a Competing
Transaction, (2) issuing a stop, look and
listen announcement, (3) complying with its
disclosure obligations under U.S. federal or state law
regarding a Competing Transaction or (4) taking any action
that any court of competent jurisdiction orders the Company to
take.
(b) The Board shall not effect any Change in Recommendation
or take any action referred to in Section 5.4(a)(ii)(C)
unless the Board has (i) given the Purchasers at least
three (3) Business Days notice of its intent to take
such action and (ii) with respect to an action referred to
in Section 5.4(a)(ii)(C) with respect to a Superior
Competing Transaction, negotiate with the Purchasers in good
faith any amendment to this Agreement proposed by the Purchasers
and taken into account any such amendment entered into or to
which the Purchasers irrevocably covenants to enter into and for
which all internal approvals of the Purchasers have been
obtained since receipt of such notice, in each case, prior to
the end of such three-Business Day period, and such Superior
Competing Transaction thereafter remains a Superior Competing
Transaction.
Section 5.5 Changes
in the Composition of the Board.
(a) On or prior to the Closing Date, the Company shall
cause the size of the Board to be increased to nine members and
shall procure the resignation from the Board of each of the
Non-Continuing Directors. On the Closing Date, the remaining
members of the Board shall appoint the Investor Designated
Directors to fill the resulting vacancies.
(b) On or prior to the Closing Date, the Company shall
cause each committee of the Board to consist of such members of
the Board (after giving effect to the changes referred to in
Subsection 5.5(a) above) as the Investor may direct.
Section 5.6 Strategic
Plan.
As soon as practicable after the date hereof, the Company and
the Investor shall cooperate in developing a new strategic plan
designed to restore the Company to profitability and to provide
a platform for future growth (the Strategic Plan).
Section 5.7 Conduct
of Business.
From the date of this Agreement through the Closing, except as
otherwise contemplated in this Agreement or the Strategic Plan
or in connection with the consummation of the DEPFA Transaction,
the Company shall (and shall
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cause each of the Subsidiaries to) maintain its existence and
carry on its businesses in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted
and, to the extent consistent therewith, shall use all
reasonable efforts to keep available the services of its current
officers and employees and preserve its relationships with its
customers, suppliers, licensors, lessors, third-party payors and
others having business dealings with it to the end that its
goodwill and ongoing business shall be unimpaired at the time of
the Closing. Except as otherwise expressly contemplated in this
Agreement or the Strategic Plan or in connection with the
consummation of the DEPFA Transaction, the Company shall not
(nor shall it permit any of the Subsidiaries to), without the
prior written consent of the Investor:
(i) adopt any amendment to its certificate of incorporation
or by-laws or other Organizational Documents;
(ii) issue, deliver, sell, pledge, dispose of or otherwise
encumber any shares of its Capital Stock, any other voting
securities or equity equivalents or any securities convertible
into, or any rights, warrants or options to acquire, any such
shares, voting securities, equity equivalents or convertible
securities, other than (x) the issuance of shares of Common
Stock upon exercise of the Lender Warrants in accordance with
their terms and (y) the issuance of shares of Common Stock
upon the exercise of Employee Stock Options outstanding as of
the date hereof in accordance with their terms;
(iii) (A) declare, set aside or pay any dividends on,
or make any other actual, constructive or deemed distributions
in respect of, any of its capital stock, or otherwise make any
payments to its shareholders in their capacity as such, other
than dividends and other distributions by Subsidiaries to the
Company or its Subsidiaries, (B) other than in the case of
any wholly-owned Subsidiary, split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution
for shares of its capital stock or (C) purchase, redeem or
otherwise acquire any shares of its capital stock or the capital
stock of any of its non-wholly-owned Subsidiaries or any other
debt or equity securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
(iv) (A) acquire or agree to acquire (1) by
merging or consolidating with, or by purchasing a substantial
portion of the assets or properties of or equity in, or by any
other manner, any business or Business Entity or division
thereof for a price in excess of $250,000 or (2) any assets
or properties that are, individually or in the aggregate,
material to the Company and its Subsidiaries taken as a whole,
other than in the ordinary course of business consistent with
past practice or (B) make any capital contributions to, or
other investments in, any Person that is not a Subsidiary of the
Company (other than additional capital contributions or
investments not in excess of $250,000 in the aggregate that are
in respect of investments of the Company held as of the date
hereof);
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its
properties or assets, other than in the ordinary course of
business consistent with past practice;
(vi) other than drawings under demand lines of credit to
finance securities inventories and day loans to fund
clearance and settlement of securities, incur or assume any
indebtedness for borrowed money, guarantee any such
indebtedness, issue or sell any debt securities in respect of
which the Company or any Subsidiary is an obligor or guarantor
or warrants or other rights to acquire any debt securities,
guarantee or otherwise support any debt securities or make any
loans or advances to any other Person;
(vii) alter (through merger, liquidation, reorganization,
restructuring or in any other fashion) the corporate structure
or ownership of the Company or any non-wholly-owned Subsidiary;
(viii) change or modify the accounting methods, principles
or practices used by it (other than changes or modifications
required to be made by changes in GAAP);
(ix) make or agree to make any capital expenditure, other
than (x) maintenance capital expenditures in the ordinary
course of business consistent with past practice or (y) in
an amount not greater than $250,000 in the aggregate;
(x) settle or compromise any liability for Taxes or any
suit, proceeding or claim or threatened suit, proceeding or
claim in an amount not covered by insurance in excess of
$250,000 in the aggregate;
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(xi) prepare or file any Tax Return inconsistent with past
practice or, on any such Tax Return, take a position or make any
election, or adopt any method, that is inconsistent with
positions taken, elections made or methods used in preparing or
fling similar Tax Returns in prior periods, or make any material
tax election increasing its liability for Taxes or which, in the
opinion of counsel, is not permitted to be made;
(xii) take any action prior to the Closing Date, other than
in the ordinary course of business consistent with past
practice, that could give rise to any material Tax liability or
materially reduce any Tax asset of the Company or any Subsidiary;
(xiii) make any material amendment to, or waive any
material provision of, any Company Contract, other than in the
ordinary course of business consistent with past practice or in
connection with the transactions contemplated hereby;
(xiv) violate or fail to perform any material obligation or
duty imposed upon it by any Requirement of Law;
(xv) take or agree to take any action that would reasonably
be expected, individually or in the aggregate, to cause any
representation or warranty of the Company set forth in this
Agreement not to be true and correct in any material respect or
result in any of the conditions set forth in this
Article VI not being satisfied as contemplated by this
Agreement;
(xvi) terminate the employment of any Designated Key
Employee;
(xvii) increase in any manner the compensation of any of
its Designated Key Employees or enter into, establish, amend or
terminate any employment, consulting, retention, change in
control, collective bargaining, bonus or other incentive
compensation, profit sharing, deferred compensation, pension,
retirement, vacation, stock option or other equity, health or
other welfare, or other compensation or benefit plan, policy,
agreement, trust, fund or arrangement with, for or in respect of
shareholder, officer, key employee, director, consultant or
Affiliate other than (x) as contemplated in the Company
Disclosure Letter, (y) as required pursuant to the terms of
agreements in effect on the date hereof or as required by any
Requirement of Law or (z) as are otherwise in the ordinary
course of business consistent with past practice and are not in
the aggregate material;
(xviii) fail to use its commercially reasonable efforts to
comply in all material respects with any Requirement of Law
applicable to it or any of its properties or assets or to
maintain in full force and effect any Company Permit;
(xix) engage in any conduct that could be construed to
constitute a material change in business operations
within the meaning of NASD Rule 1011(i); or
(xx) authorize, recommend, propose or announce an intention
to do any of the foregoing, or enter into any contract,
agreement, commitment or arrangement to do any of the foregoing.
Section 5.8 Listing.
The Company shall use its reasonable best efforts to maintain
the Common Stocks authorization for quotation on the
NASDAQ Global Market and to cause the Purchased Shares to be
approved for listing thereon on or prior to the Closing Date to
the extent permitted under the rules of the NASDAQ Global
Market. Neither the Company nor any of the Subsidiaries shall
take any action which would be reasonably expected to result in
the delisting or suspension of the Common Stock on the NASDAQ
Global Market and shall take all action reasonably necessary to
maintain the listing of the Common Stock on the NASDAQ Global
Market, including without limitation, exhausting all available
remedies, appeal reviews and other similar mechanisms and
procedures provided for under the rules and regulations of the
NASDAQ Global Market to permit the continued listing of the
Common Stock on the NASDAQ Global Market. The Company shall pay
all fees and expenses in connection with satisfying its
obligations under this Section 5.8.
Section 5.9 Preserve
Accuracy of Representations and Warranties; Fulfillment of
Conditions; Notification of Certain Matters.
(a) The Company and the Purchasers shall each refrain from
taking any action which would render any representation or
warranty contained in Article III or IV inaccurate in
any material respect as of the Closing Date.
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Each party shall promptly notify the other of (i) any event
or matter that would reasonably be expected to cause any of its
representations or warranties to be untrue in any material
respect or (ii) any action, suit or proceeding that shall
be instituted or threatened against such party to restrain,
prohibit or otherwise challenge the legality of any of the
Transactions.
(b) The Company and the Purchasers shall each use their
respective reasonable best efforts to cause each of the
conditions precedent set forth in Article VI to be
satisfied as soon as practicable after the date hereof.
(c) Between the date hereof and the Closing Date, the
Company shall notify the Purchasers of (i) the occurrence
of any Company Material Adverse Effect, (ii) any lawsuit,
claim, proceeding or investigation that is threatened, brought,
asserted or commenced against the Company or any Subsidiary or
any of their respective officers, directors or employees which
would have been required to be disclosed in the Company
Disclosure Letter with respect to the representations and
warranties of the Company set forth in Section 3.11 if such
lawsuit, claim, proceeding or investigation had arisen prior to
the date hereof, (iii) any notice or other communication
from any third party alleging that the consent of such third
party is or may be required in connection with the Transactions,
(iv) any material default of which the Company becomes
aware under any Company Contract or any event which, with notice
or lapse of time or both, would become such a default on or
prior to the Closing Date; and (v) any notice from any
Governmental Authority in connection with or relating to any of
the Transactions.
(d) The Company and the Purchasers shall cooperate fully
with each other and assist each other in defending any lawsuits
or other legal proceedings, whether judicial or administrative,
brought against either party challenging this Agreement or the
Registration Rights Agreement or the consummation of the
Transactions, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental
Authority vacated or reversed.
Section 5.10 Contractual
Consents and Governmental Approvals.
(a) The Company will act diligently and reasonably in
attempting to obtain before the Closing Date, and the Purchasers
shall reasonably cooperate with the Company in such efforts, all
Company Contractual Consents in form and substance reasonably
satisfactory to the Investor, provided that neither the Company
nor the Purchasers shall have any obligation to offer or pay any
consideration in order to obtain any such Company Contractual
Consents; and provided, further, that the Company shall not make
any agreement or understanding affecting the Company or any of
the Subsidiaries, or any of their respective businesses, as a
condition for obtaining any such Company Contractual Consents
except with the prior written consent of the Investor.
(b) Between the date hereof and the Closing Date, the
Company and the Purchasers shall act diligently and reasonably,
and shall cooperate with each other, in making any required
filing, registration or notification with, and in attempting to
obtain any consent, authorization or approval required from, any
Governmental Authority, any self regulatory organization
(including the NASD), and stock exchange of which the Company or
any Subsidiary is a member in connection with the Transactions
or to otherwise satisfy the conditions set forth in
Article VI; provided that the Company shall not make any
agreement or understanding affecting the Company or any of the
Subsidiaries, or any of their respective businesses, as a
condition for obtaining any such consents or waivers except with
the prior written consent of the Purchasers; provided, further
that neither the Company nor the Purchasers shall be obligated
to (A) execute settlements, undertakings, consent decrees,
stipulations or other agreements, (B) sell, divest, hold
separate or otherwise convey any particular assets or categories
of assets or businesses of the Company or the Purchasers or
(C) otherwise take or commit to take actions that after the
Closing Date would limit the freedom of action of the Purchasers
or the Company or its Subsidiaries with respect to, or its or
their ability to retain, one or more of its or their businesses,
product lines or assets, in each case as may be required in
order to avoid the entry of, or to effect the dissolution of,
any injunction, temporary restraining order or other order in
any suit or proceeding which would otherwise have the effect of
preventing or materially delaying the Closing
Section 5.11 Use
of Proceeds.
The net proceeds received by the Company from the issuance of
the Purchased Shares shall be used in a manner consistent with
the Strategic Plan.
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ARTICLE VI
CONDITIONS
Section 6.1 Conditions
to the Companys Obligations.
The obligation of the Company to effect the Investment and the
other Transactions shall be subject to the fulfillment (or
waiver by the Company) at or prior to the Closing of each of the
following conditions:
(a) No Order. No court or other Governmental Authority
having jurisdiction over the Company or any of the Subsidiaries
or the Purchasers shall have instituted, enacted, issued,
promulgated, enforced or entered any Requirement of Law (whether
temporary, preliminary or permanent) that is then in effect and
that (i) has the effect of making illegal or otherwise
prohibiting or invalidating consummation of any of the
Transactions or any provision of this Agreement or the
Registration Rights Agreement or (ii) seeks to restrain,
prohibit or invalidate the consummation of any of the
Transactions or to invalidate any provision of this Agreement or
the Registration Rights Agreement.
(b) Shareholder Approvals. The Shareholder Approvals shall
have been duly adopted by the Common Shareholders.
(c) Governmental Approvals. Each Company Approval and
Investor Approval shall have been obtained or made and shall be
in full force and effect to the extent that the failure to
obtain or make such Company Approval or Investor Approval
(i) has the effect of making illegal or otherwise
prohibiting or invalidating consummation of any of the
Transactions or any provision of this Agreement or the
Registration Rights Agreement or (ii) could reasonably be
expected, individually or together with other Company Approvals
that have not been obtained or made, to have a Company Material
Adverse Effect.
(d) Performance of Obligations. The Purchasers shall have
performed in all material respects each of its respective
covenants and agreements contained in this Agreement or the
Registration Rights Agreement and required to be performed at or
prior to the Closing.
(e) Representations and Warranties. Each of the
representations and warranties of the Purchasers contained in
this Agreement that is qualified as to materiality shall be true
and correct on and as of the Closing Date as if made on and as
of such date (other than representations and warranties which
address matters only as of a certain date, which shall be true
and correct as of such certain date) and each of the
representations and warranties of the Purchasers that is not so
qualified shall be true and correct in all material respects on
and as of the Closing Date as if made on and as of such date
(other than representations and warranties which address matters
only as of a certain date, which shall be true and correct in
all material respects as of such certain date).
(f) Officers Certificate. A certificate executed on
behalf of the Investor by a senior executive of the Investor, to
the effect that the conditions set forth in
paragraphs (d) and (e) above have been satisfied,
shall have been delivered to the Company.
(g) DEPFA Transaction. In case of a Closing occurring on or
prior to July 31, 2007, the DEPFA Transaction shall have
been consummated in accordance with the terms of the DEPFA
Purchase Agreement.
Section 6.2 Conditions
to the Purchasers Obligations.
The obligation of the Purchasers to make the Investment and to
effect the other Transactions shall be subject to the
fulfillment (or waiver by the Purchasers) at or prior to the
Closing of each of the following conditions:
(a) No Order. No court or other Governmental Authority
having jurisdiction over the Company or any of the Subsidiaries
or the Purchasers shall have instituted, enacted, issued,
promulgated, enforced or entered any Requirement of Law (whether
temporary, preliminary or permanent) that is then in effect and
that (i) has the effect of making illegal or otherwise
prohibiting or invalidating consummation of any of the
Transactions or any provision of this Agreement or the
Registration Rights Agreement or result or would result in a
Company Material Adverse Effect or (ii) seeks to restrain,
prohibit or invalidate the consummation of any of the
Transactions or to invalidate any provision of this Agreement or
the Registration Rights Agreement.
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(b) Shareholder Approvals. The Shareholder Approvals shall
have been duly adopted by the Common Shareholders.
(c) Governmental Approvals. Each Company Approval and
Investor Approval shall have been obtained or made and shall be
in full force and effect to the extent that the failure to
obtain or make such Company Approval or Investor Approval
(i) has the effect of making illegal or otherwise
prohibiting or invalidating consummation of any of the
Transactions or any provision of this Agreement or the
Registration Rights Agreement or (ii) would reasonably be
expected, individually or together with other Company Approvals
or Investor Approvals that have not been obtained or made, to
have a Company Material Adverse Effect.
(d) Contractual Consents. Each Company Contractual Consent
shall have been obtained and shall be in full force and effect
to the extent that the failure to obtain such Company
Contractual Consent would reasonably be expected, individually
or together with other Company Contractual Consents that have
not been obtained, to have a Company Material Adverse Effect.
(e) Performance of Obligations. The Company shall have
performed in all material respects each of its respective
covenants and agreements contained in this Agreement or the
Registration Rights Agreement and required to be performed at or
prior to the Closing.
(f) Representations and Warranties. Each of the
representations and warranties of the Company contained in this
Agreement that is qualified as to materiality shall be true and
correct on and as of the Closing Date as if made on and as of
such date (other than representations and warranties which
address matters only as of a certain date, which shall be true
and correct as of such certain date) and each of the
representations and warranties of the Company that is not so
qualified shall be true and correct in all material respects on
and as of the Closing Date as if made on and as of such date
(other than representations and warranties which address matters
only as of a certain date, which shall be true and correct in
all material respects as of such certain date).
(g) Retention of Employees. At least 22 of the Designated
Key Employees (i) shall remain in the continuing employ of
the Company and the Subsidiaries as of the Closing Date,
(ii) shall not have given notice or stated an intent to
terminate their employment after the Closing and
(iii) shall have entered into non-competition and
non-solicitation covenants substantially in the form heretofore
delivered to the Company by the Investor. In addition, the
number of employees of the Company and the Subsidiaries not
constituting Designated Key Employees (other than those listed
on Appendix A to the Company Disclosure Letter) whose
employment terminates between the date of this Agreement and the
Closing Date shall not have increased by more than 20% in
comparison with the employee turnover experience of the Company
and the Subsidiaries over whichever of the following periods
represents the higher rate of turnover: (x) the comparable
period of 2006 or (y) the six-month period ending on the
date hereof.
(h) No Other Company Material Adverse Effect. Since the
date of this Agreement, there shall not have occurred any
changes, events or developments that have had, or would
reasonably be expected, individually or in the aggregate, to
have, a Company Material Adverse Effect.
(i) Officers Certificate. A certificate executed on
behalf of the Company by a senior executive officer of the
Company to the effect that the conditions set forth in
paragraphs (d), (e), (f) and clause (ii) in the
first sentence and the entire second sentence of (g) above
have been satisfied, shall have been delivered to the Purchasers.
ARTICLE VII
INDEMNIFICATION
Section 7.1 Survival.
The respective representations, warranties, covenants and
agreements of the Company and the Purchasers set forth in this
Agreement or the Registration Rights Agreement or in any
exhibit, schedule, certificate or instrument attached or
delivered pursuant hereto or thereto (except covenants and
agreements which are expressly required to be performed and are
performed in full on or prior to the Closing Date) shall survive
the Closing Date and the
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consummation of the Transactions until April 30, 2009,
except that (i) the representations and warranties set
forth in Sections 3.1, 3.2, 3.3, 3.4, 3.26 and 3.29 shall
survive indefinitely and (ii) the representations and
warranties contained in Section 3.14 (the representations
and warranties referred to in clauses (i) and
(ii) being sometimes hereinafter collectively referred to
as the Surviving Representations) shall survive
until the expiration of the applicable statute of limitations
set forth in the Code or other applicable Tax law.
Section 7.2 Indemnification.
Subject to the limitations set forth in this Article VII,
the Company shall indemnify, defend and hold harmless the
Purchasers, its members, managers, officers, employees and
Affiliates (collectively, the Purchaser Indemnified
Parties) from and against any and all losses, costs,
damages, liabilities, obligations, impositions, inspections,
assessments, fines, deficiencies and expenses (collectively,
Damages) resulting from, in connection with or
arising out of (i) any inaccuracy in any representation or
warranty of the Company contained in this Agreement or the
Registration Rights Agreement or in any exhibit, schedule,
certificate or instrument attached or delivered pursuant hereto
or thereto or (ii) any breach of or default under any of
the covenants or agreements given or made by the Company in this
Agreement or the Registration Rights Agreement, or in any
exhibit, schedule, certificate or instrument attached or
delivered pursuant hereto or thereto; provided, however, that
any claim by any Purchaser Indemnified Party under (i) or
(ii) above shall be made before April 30, 2009, except
for a claim relating to a breach by the Company of any of the
Surviving Representations. In determining the amount of any
Damages for which a Purchaser Indemnified Party may seek
indemnification under this Section 7.2, any materiality
standard contained in a representation, warranty or covenant of
the Company shall be disregarded.
Section 7.3 Damages
Threshold.
With respect to any claim by a Purchaser Indemnified Party for
indemnification under this Article VII, such Purchaser
Indemnified Party may not seek indemnification with respect to
any claim for Damages (i) until the sum of all Damages for
which all Purchaser Indemnified Parties are entitled to
indemnification under this Article VII equals or exceeds
$3,000,000, whereupon each Purchaser Indemnified Party shall be
entitled to seek indemnification with respect to all Damages
incurred by it and (ii) if the aggregate amount of Damages
for which indemnification has been provided under this
Article VII, other than Damages arising out of a breach of
a Surviving Representation, equals or exceeds $17,500,000.
Section 7.4 Indemnification
Procedures.
In the event a Purchaser Indemnified Party has a claim against
the Company under this Article VII, such Purchaser
Indemnified Party shall deliver notice of such claim (which
claim shall be described with reasonable specificity in such
notice) with reasonable promptness to the Company. The failure
by such Purchaser Indemnified Party to so notify the Company
shall not relieve the Company from any liability which it may
have to such Purchaser Indemnified Party under this
Article VII, except to the extent that the Company
demonstrates that it has been actually prejudiced by such
failure. Subject to Section 7.3, if the Company does not
notify such Purchaser Indemnified Party within thirty
(30) calendar days following delivery of such notice that
the Company disputes its liability to such Purchaser Indemnified
Party under this Article VII, such claim specified by such
Purchaser Indemnified Party in such notice shall conclusively be
deemed a liability of the Company under this Article VII
and the Company shall pay in
same-day
funds the amount of such liability to such Purchaser Indemnified
Party on demand or, in the case of any notice in which the
amount of the claim (or any portion thereof) is estimated, on
such later date when the amount of such claim (or such portion
thereof) becomes finally determined. If the Company has timely
disputed its liability with respect to such claim, as provided
above, such Purchaser Indemnified Party and the Company shall
proceed in good faith to negotiate a resolution of such dispute
and, if not resolved through negotiations, such dispute shall be
resolved by litigation in an appropriate court of competent
jurisdiction subject to Section 9.4.
Section 7.5 Third-Party
Claims. In the event that a Purchaser Indemnified
Party becomes aware of a third-party claim which such Purchaser
Indemnified Party believes may result in a demand for
indemnification pursuant to this Article VII, such
Purchaser Indemnified Party shall promptly notify the Company of
such claim (with a copy to the independent directors), and the
Company shall be entitled, at the Companys sole expense,
to assume the defense of such claim; provided, however, that
(i) the Company acknowledges in writing its obligation to
indemnify, defend and hold harmless all Purchaser Indemnified
Parties against such claim pursuant to this Article VII,
(ii) such Purchaser
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Indemnified Party shall be entitled to participate, at the
Purchaser Indemnified Partys sole expense, in such defense
and (iii) the Company shall not settle such claim without
the consent of such Indemnified Party (which consent shall not
be unreasonably withheld) unless such settlement entails no
payment of any kind by such Purchaser Indemnified Party and
provides for the complete release from all liabilities and
claims of any kind of such Purchaser Indemnified Party from such
claim and the circumstances giving rise to such claim; provided,
further, however, that if the Company does not elect to assume
the defense of such claim pursuant to this sentence, then the
Company may participate, at the Companys sole expense, in
such defense. In the event that the Company has proposed any
such settlement, the Company shall not have any power or
authority to object under any provision of this Article VII
to the amount of any claim by the Purchaser Indemnified Party
for indemnity with respect to such settlement.
Section 7.6 Special
Tax Indemnity.
Without limiting the indemnity set forth in Section 7.2, in
the event that any claim or assessment is asserted against the
Company or any Subsidiary by any Taxing Authority prior to the
second anniversary of the Closing Date with respect to any state
or local income, franchise or similar Taxes required to be paid
in respect of any Tax period ending on or prior to the Closing
Date that exceeds the amount reserved for such Taxes in the
Closing Date Balance Sheet, upon demand of the Investor, the
Company shall issue to the Purchasers pro rata based on the
respective numbers of Purchased Shares issued to them at the
Closing, a number of additional shares of Common Stock (the
Tax Indemnity Shares) equal to the amount of such
Taxes divided by the Final Per Share Purchase Price. The Tax
Indemnity Shares shall be issued free and clear of all Liens
and, except where the context requires otherwise, shall be
deemed to constitute additional Purchased Shares for
the purposes of this Agreement. No claim for indemnification may
be made pursuant to Section 7.2 with respect to any Taxes
for which Tax Indemnity Shares have been issued pursuant to this
Section 7.6.
Section 7.7 Tax
Treatment of Indemnity Payments.
Any indemnity payments made hereunder by the Company to a
Purchaser Indemnified Party, and any issuance of Tax Indemnity
Shares to the Purchasers, shall be treated by the parties for
all federal, state and local income tax purposes as an
adjustment to the Purchase Price paid by the Purchasers for the
Purchased Shares, and not as a dividend or other form of income
payment from the Company to the Purchasers or applicable
Purchaser Indemnified Party.
ARTICLE VIII
FURTHER
AGREEMENTS
Section 8.1 Public
Announcements.
The Purchasers and the Company shall consult with each other
before issuing any press release or otherwise making any public
statements with respect to the execution and delivery of this
Agreement or the Registration Rights Agreement or any of the
Transactions, and shall not issue any such press release or make
any such public statement prior to reaching mutual agreement on
the language of such press release or such public statement,
except as may otherwise be required by applicable Requirement of
Law or stock exchange rule.
Section 8.2 Fees
and Expenses.
(a) Except as otherwise specified in this Section 8.2
or agreed in writing by the parties, all costs and expenses
incurred in connection with this Agreement, the Registration
Rights Agreement and the Transactions shall be paid by the party
incurring such cost or expense.
(b) The Company shall promptly reimburse the Purchasers
upon presentation of appropriate invoices and documentation
therefor on or after the Closing Date for all Reimbursable
Expenses incurred by or on behalf of the Purchasers or any of
its Affiliates. Any such Reimbursable Expenses incurred on or
prior to the Closing Date may also be deducted by the Purchasers
from the Purchase Price as contemplated in Article II. For
purposes of this Agreement, Reimbursable Expenses
shall mean all reasonable
out-of-pocket
fees and expenses incurred by or on behalf of the Purchasers or
any of its Affiliates at any time prior to any termination of
this Agreement (whether before or after the date hereof or
before or after the Closing Date) in connection with their due
diligence investigation of the Company,
A-27
the preparation of this Agreement, the Registration Rights
Agreement and the Proxy Statement and consummation of the
Transactions and related preparations therefor, including all
fees and expenses of counsel, financial advisors (and their
counsel), accountants, experts and consultants to the Purchasers
and their Affiliates.
(c) If this Agreement is terminated by the Company pursuant
to Section 9.1(f), then, immediately prior to such
termination, the Company shall reimburse the Purchasers in same
day funds for all Reimbursable Expenses incurred through the
date of such termination; provided that (i) if such
termination occurs on or prior to June 30, 2007, the
Reimbursable Expenses required to be paid by the Company
hereunder shall not exceed $550,000 in the aggregate and
(ii) if such termination occurs after June 30, 2007,
the Reimbursable Expenses required to be paid by the Company
hereunder shall not exceed $750,000 in the aggregate.
(d) If this Agreement is terminated by the Purchasers
pursuant to Section 9.1(g), the Company shall promptly upon
demand reimburse the Purchasers for all Reimbursable Expenses
incurred through the date of termination, provided that
(i) if such a termination pursuant to Section 9.1(g)
occurs on or prior to June 30, 2007, the Reimbursable
Expenses required to be paid by the Company hereunder shall not
exceed $550,000 in the aggregate and (ii) if such
termination occurs after June 30, 2007, the Reimbursable
Expenses required to be paid by the Company hereunder shall not
exceed $750,000 in the aggregate.
(e) If this Agreement is terminated by the Investor
pursuant to Section 9.1 (b), without limiting any other
remedies available to the Purchasers as a result of the
Companys breach triggering such termination, the Company
shall, promptly following such termination, reimburse the
Purchasers for all Reimbursable Expenses incurred through the
date of such termination.
(f) The Company acknowledges that the agreements contained
in this Section 8.2 are an integral part of the
transactions contemplated by this Agreement, and that, without
these agreements, the Purchasers would not enter into this
Agreement. Accordingly, if the Company fails to pay promptly any
Reimbursable Expenses due to the Purchasers pursuant to this
Section 8.2, (i) interest shall accrue and immediately
become payable on the overdue amount from the due date thereof
until the date of payment at the base rate of Citibank, N.A. in
effect from time to time and (ii) in the event that the
Purchasers commences a suit that results in a judgment against
the Company for any such overdue amount or interest, the Company
shall also reimburse the Purchasers for its costs and expenses
(including attorneys fees) incurred in connection with
such suit.
ARTICLE IX
GENERAL
Section 9.1 Termination.
This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual written consent of the Investor and the
Company;
(b) by the Investor if there has been (i) a material
breach of any of the representations or warranties of the
Company set forth in this Agreement that would give rise to the
failure of the condition set forth in Section 6.2(f) or
(ii) a material breach of any of the covenants or
agreements of the Company set forth in this Agreement, which
breach has not been cured within ten (10) Business Days
following receipt by the Company of notice of such breach from
the Investor; provided that the Purchasers are not then in
material breach of any representation or warranty under this
Agreement.
(c) by the Company if there has been (i) a material
breach of any of the representations or warranties of the
Purchasers set forth in this Agreement that would give rise to
the failure of the condition set forth in Section 6.1(e) or
(ii) a material breach of any of the covenants or
agreements of the Purchasers set forth in this Agreement, which
breach has not been cured within ten (10) Business Days
following receipt by the Purchasers of notice of such breach
from the Company; provided that the Company is not then in
material breach of any representation or warranty under this
Agreement.
(d) by either the Investor or the Company if any permanent
order, decree, ruling or other action of a court or other
competent authority restraining, enjoining or otherwise
preventing the consummation of any of the Transactions shall
have become final and non-appealable;
A-28
(e) by either the Investor or the Company if the Closing
shall not have occurred on or before September 30, 2007,
unless the failure for the Closing to occur is the result of a
material breach of this Agreement by the party seeking to
terminate this Agreement;
(f) by the Company (but only if the Company has paid the
Reimbursable Expenses to the Purchasers pursuant to
Section 8.2(f)) if the Board shall accept, approve or
authorize a Superior Competing Transaction; provided that the
Company and the Board shall have acted in full compliance with
Sections 5.3 and 5.4; or
(g) by the Investor if the Board shall accept, approve or
authorize a Superior Competing Transaction.
In the event of termination of this Agreement by either the
Investor or the Company, as provided in this Section 9.1,
this Agreement shall forthwith become void and there shall be no
liability hereunder on the part of the Investor or the Company,
or their respective officers, directors, managers, members or
partners, except for Sections 8.2 and 9.1 and except that
no such termination shall relieve any party of liability for any
breach of any other provision of this Agreement occurring prior
to such termination.
Section 9.2 Notice.
Whenever any notice is required to be given hereunder, such
notice shall be deemed given only when such notice is in writing
and is delivered by messenger or courier or, if sent by fax,
when received. All notices, requests and other communications
hereunder shall be delivered by courier or messenger or shall be
sent by facsimile to the following addresses:
(i) If to the Investor, at the following address:
MatlinPatterson FA Acquisition LLC
c/o MatlinPatterson
Global Advisers LLC
520 Madison Avenue,
35th Floor
New York, New York 10022
Attention: General Counsel
Fax:
(212) 651-4011
with a copy by fax or messenger or courier to:
Sidley Austin LLP
787 Seventh Avenue
New York, New York 10019
Facsimile:
(212) 839-5599
Attention: Duncan N. Darrow and Michael H. Yanowitch
(ii) If to the Company, at the following address:
First Albany Companies Inc.
677 Broadway
Albany, NY 12207
Facsimile:
(518) 447-8606
Attention: General Counsel
with a copy by fax or messenger or courier to:
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Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
Facsimile:
(212) 259-6333
Attention:
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Donald J. Murray
Christopher P. Peterson
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or to such other respective addresses as may be designated by
notice given in accordance with this Section 9.2.
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Section 9.3 Complete
Agreement; No Third-Party Beneficiaries.
This Agreement, the Registration Rights Agreement, the Investor
Confidentiality Agreement (which shall terminate and cease to
have any force or effect as of the Closing Date), the Company
Disclosure Letter and the Investor Disclosure Letter constitute
the entire agreement among the parties pertaining to the subject
matter hereof and supersede all prior agreements and
understandings of the parties in connection therewith, including
the Recapitalization Term Sheet dated April 27, 2007
between the Company and MatlinPatterson Global Opportunities
Partners II, L.P., as amended, which shall be deemed
terminated and of no further force or effect. This Agreement,
other than Article VII, is not intended to confer upon any
person other than the Company and the Purchasers any rights or
remedies hereunder.
Section 9.4 GOVERNING
LAW.
THIS AGREEMENT SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS
PRINCIPLES OF CONFLICTS OF LAWS THAT WOULD APPLY THE LAW OF ANY
OTHER JURISDICTION. THE PURCHASERS AND THE COMPANY HEREBY
CONSENT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK AND THE FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN
WITH RESPECT TO ANY ACTION, SUIT OR PROCEEDING BROUGHT TO
ENFORCE ANY PROVISION OF THIS AGREEMENT OR TO DETERMINE THE
RIGHTS OF ANY PARTY HERETO.
Section 9.5 No
Assignment.
Neither this Agreement nor any rights or obligations under it
are assignable by either party without the written consent of
the other party.
Section 9.6 Headings.
The descriptive headings of the articles, sections and
subsections of this Agreement are for convenience only and do
not constitute a part of this Agreement.
Section 9.7 Counterparts.
This Agreement may be executed in one or more counterparts and
by different parties in separate counterparts. All such
counterparts shall constitute one and the same agreement and
shall become effective when one or more counterparts have been
signed by each party and delivered to the other party.
Section 9.8 Remedies;
Waiver.
All rights and remedies existing under this Agreement are
cumulative to, and not exclusive of, any rights or remedies
otherwise available. No failure on the part of any party to
exercise or delay in exercising any right hereunder shall be
deemed a waiver thereof, nor shall any single or partial
exercise preclude any further or other exercise of such or any
other right. Notwithstanding any other provision of this
Agreement, it is understood and agreed that remedies at law
would be inadequate in the case of any breach of the covenants
contained in this Agreement. The Company and the Purchasers
shall be entitled to equitable relief, including the remedy of
specific performance, with respect to any breach or attempted
breach of such covenants by the other party.
Section 9.9 Severability.
Any invalidity, illegality or unenforceability of any provision
of this Agreement in any jurisdiction shall not invalidate or
render illegal or unenforceable the remaining provisions hereof
in such jurisdiction and shall not invalidate or render illegal
or unenforceable such provisions in any other jurisdiction. The
Company and the Purchasers shall endeavor in good faith
negotiations to replace any invalid, illegal or unenforceable
provision with a valid, legal and enforceable provision, the
economic effect of which comes as close as possible to that of
the invalid, illegal or unenforceable provision.
Section 9.10 Amendment;
Waiver.
This Agreement may be amended only by agreement in writing of
both parties. No waiver of any provision nor consent to any
exception to the terms of this Agreement shall be effective
unless in writing and signed by the party to be bound and then
only to the specific purpose, extent and instance so provided.
[the next
page is the signature page]
A-30
IN WITNESS WHEREOF, the Company and the Investor have caused
this Agreement to be executed by their respective offers
thereunto duly authorized all as of the date first written above.
FIRST ALBANY COMPANIES INC
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By:
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/s/ Peter
J. McNierney
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Name: Peter J. McNierney
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Title:
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President and Chief Executive Officer
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MATLINPATTERSON FA ACQUISITION LLC
Name: Robert Weiss
A-31
Exhibit A
to
Investment Agreement
Defined Terms.
Action or Proceeding means any suit, action,
proceeding (including any compliance, enforcement or
disciplinary proceeding), arbitration, formal or informal
inquiry, inspection, investigation or formal order of
investigation of complaint.
Affiliate has the meaning set forth in
Rule 12b-2
under the Exchange Act as in effect as on the date hereof.
Agreement has the meaning set forth in the
preamble.
Amendment Approval has the meaning set forth
in Section 5.2(a).
Associated Person means an
associated persons as defined in
Article I, section (dd) of the NASDs By-laws.
Board has the meaning set forth in the
recitals.
Business Day means any day other than a
Saturday, Sunday or a day on which banking institutions in the
State of New York are authorized by law or executive order to
close.
Business Entity means any corporation,
partnership, limited liability company, joint venture,
association, partnership, business trust or other business
entity.
Capital Stock means the Common Stock and the
Preferred Stock.
Change in Recommendation has the meaning set
forth in Section 5.2(b).
Charter Amendment has the meaning set forth
in Section 5.2(a).
Closing has the meaning set forth in
Section 2.2.
Closing Date Balance Sheet has the meaning
set forth in Section 2.1(b)(ii)(C).
Closing Date means the date on which the
Closing takes place.
Closing Date Balance Sheet has the meaning
set forth in Section 2.1(b)(ii)(C).
Closing Date Pro Forma Balance Sheet has the
meaning set forth in Section 2.1(b)(ii)(C).
Code means the U.S. Internal Revenue
Code of 1986, as amended.
Co-Investor has the meaning set forth in
Section 2.1(c).
Co-Investor Joinder Agreement has the meaning
set forth in Section 2.1(c).
Common Stock means the common stock, par
value $.01 per share, of the Company.
Common Shareholders has the meaning set forth
in Section 5.2(a).
Company has the meaning set forth in the
preamble.
Company Approvals has the meaning set forth
in Section 3.6(b).
Company Contract means any material
indenture, mortgage, deed of trust, lease, contract, agreement,
instrument or other undertaking or legally binding arrangement
(whether written or oral) to which the Company or any Subsidiary
is a party or by the Company or any Subsidiary or any of their
respective properties or assets is bound.
Company Contractual Consents has the meaning
set forth in Section 3.6(c).
Company Disclosure Letter means the letter
dated the date hereof delivered by the Company to the Investor,
which letter relates to this Agreement and is designated therein
as the Company Disclosure Letter.
A-32
Company Material Adverse Effect means a
material adverse effect on (i) the ability of the Company
to consummate any of the Transactions or to perform any of its
obligations under this Agreement or the Registration Rights
Agreement or (ii) the businesses, assets (including
licenses, franchises and other intangible assets), liabilities,
financial condition or operating income of the Company and its
Subsidiaries, taken as a whole, provided, however that in no
event shall any of the following, alone or in combination, be
deemed to constitute, nor shall any of the following be taken
into account in determining whether there has been, a Company
Material Adverse Effect: (a) a change in the market price
or trading volume of Common Stock (but not any effect, event,
development or change underlying such decrease to the extent
that such effect, event, development or change would otherwise
constitute a Material Adverse Effect); (b) changes in
conditions in the U.S. or global economy or capital or
financial markets generally, including changes in interest or
exchange rates; (c) changes in general legal, tax,
regulatory, political or business conditions; (d) changes
that are the result of factors generally affecting the industry
in which the Company and the Subsidiaries operate;
(e) changes in applicable law or GAAP; (f) the
negotiation, execution, announcement, pendency or performance of
this Agreement or the transactions contemplated hereby or the
consummation of the transactions contemplated by this Agreement,
including the impact thereof on relationships, contractual or
otherwise, with customers, suppliers, vendors, lenders, brokers,
investors, venture partners or employees; (g) acts of war,
armed hostilities, sabotage or terrorism, or any escalation or
worsening of any such acts of war, armed hostilities, sabotage
or terrorism threatened or underway as of the date of this
Agreement; (h) earthquakes, hurricanes, floods, or other
natural disasters; (i) any action taken by the Company at
the request or with the prior written consent of the Investor;
(j) the failure of the Company to take any action as a
result of any restrictions or prohibitions set forth in
Article V; (k) any adverse development in any
litigation or regulatory proceeding described in
Schedule 3.11 or the commencement of any action or
proceeding based on a pre-litigation claim described in
Schedule 3.11; (l) any litigation or regulatory
proceeding alleging claims arising under Section 10(b) of
the Securities Exchange Act of 1934 and
Rule 10b-5
promulgated thereunder or other laws to similar effect based on
the existence, announcement or performance of this Agreement or
the Transactions contemplated hereby or (m) the departure,
or the announcement of an intent to depart in the near to
immediate future, from the Company of any of the employees
listed in Appendix A to the Company Disclosure Schedule.
Company Permits has the meaning set forth in
Section 3.19(a).
Company Recommendation has the meaning set
forth in Section 5.2(b).
Competing Transaction has the meaning set
forth in Section 5.3(d).
Contractual Consent applicable to a specified
Person in respect of a specified matter means any consent
required to be obtained by such Person from any other Person
party to any Contractual Obligation to which such first Person
is a party or by which it is bound in order for such matter to
occur or exist without resulting in the occurrence of a default
or event of default or termination, the creation of any lien,
the triggering of any decrease in the rights of such first
Person, any increase in the obligations of such first Person or
any other consequence adverse to the interests of such first
Person, under any provision of such Contractual Obligation.
Contractual Obligation means, as to any
Person, any obligation arising out of any indenture, mortgage,
deed of trust, contract, agreement, insurance policy, instrument
or other undertaking to which such Person is a party or by which
it or any of its property is bound (including, without
limitation, any debt security issued by such Person).
Convertible Securities means securities or
obligations that are convertible into or exchangeable for shares
of Capital Stock.
Damages has the meaning set forth in
Section 7.2.
December Balance Sheet means the consolidated
balance sheet of the Company and its consolidated subsidiaries
as of December 31, 2006 that is included in the Financial
Statements.
DEPFA means DEPFA Bank plc, an Irish bank.
DEPFA Purchase Agreement means the Asset
Purchase Agreement dated as of March 6, 2007 among DEPFA,
the Company and First Albany Capital Inc.
A-33
DEPFA Transaction means the sale of the
Municipal Capital Markets Group of the Companys
wholly-owned subsidiary, First Albany Capital Inc., to DEPFA and
the related purchase by DEPFA of the Companys municipal
bond inventory.
Designated Key Employees means those
employees of the Company and the Subsidiaries as have been
identified as Designated Key Employees in a
letter of even date herewith from Lee Fensterstock to
Peter McNierney.
Designation Notice has the meaning set forth
in Section 2.1(c),
Employee Benefit Plan has the meaning set
forth in Section 3.20(b).
Employee Stock Incentive Plans means the
Companys: (i) 1999 Long-Term Incentive Plan (Amended
and Restated Through April 27, 2004, as amended),
(ii) 2001 Long-Term Incentive Plan, as amended,
(iii) 1989 Stock Incentive Plan, as amended,
(iv) Restricted Stock Inducement Plan for Descap Employees,
as amended, and (v) 2003 Directors Stock Plan,
as amended.
Employee Stock Options means any stock
options granted pursuant to any Employee Stock Incentive Plan.
Environmental Law means any foreign, federal,
state or local law, statute, permits, orders, rule or regulation
or the common or decisional law relating to the environment or
occupational health and safety, including, without limitation,
any statute, regulation or order pertaining to
(i) treatment, storage, disposal, generation and
transportation of industrial, toxic or hazardous substances or
solid or hazardous waste; (ii) air, water and noise
pollution; (iii) groundwater and soil contamination;
(iv) the release or threatened release into the environment
of industrial, toxic or hazardous substances, or solid or
hazardous waste, including, without limitation, emissions,
discharges, injections, spills, escapes or dumping of
pollutants, contaminants or chemicals; (v) the protection
of wildlife, marine sanctuaries and wetlands, including, without
limitation, all endangered and threatened species;
(vi) storage tanks, vessels and containers;
(vii) underground and other storage tanks or vessels,
abandoned, disposed or discarded barrels, containers and other
closed receptacles; (viii) health and safety of employees
and other persons; and (ix) manufacture, processing, use,
distribution, treatment, storage, disposal, transportation or
handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or oil or petroleum products or
solid or hazardous waste.
ERISA has the meaning set forth in
Section 3.20(b).
ERISA Affiliate means any member of
(i) a controlled group of corporations (as defined in
Section 414(b) of the Code); (ii) a group of trades or
businesses under common control (as defined in
Section 414(c) of the Code); or (iii) an affiliated
service group (as defined under Section 414(m) of the Code
or the regulations under Section 414(o) of the Code).
Evaluation Date has the meaning set forth in
Section 3.8(c).
Excess Cash Compensation has the meaning set
forth in Section 2.1(b)(i),
Excess Compensation has the meaning set forth
in Section 2.1(b)(i),
Excess Compensation Dilution Factor has the
meaning set forth in Section 2.1(b)(i),
Excess Imputed Stock Based Compensation has
the meaning set forth in Section 2.1(b)(i),
Exchange Act means the Securities Exchange
Act of 1934, as amended, together with the rules and regulations
promulgated thereunder.
FATV JV Entities means, collectively, FA
Technology Ventures L.P., FATV GP LLC.
Final Net Tangible Book Value Per Share has
the meaning set forth in Section 2.1(b)(ii)(C).
Final Net Tangible Book Value Report has the
meaning set forth in Section 2.1(b)(ii)(C).
Final NTBV Adjustment Factor has the meaning
set forth in Section 2.1(b)(ii)(C).
A-34
Final Per Share Purchase Price as of the date
of issuance of any Tax Indemnity Shares means $50,000,000
divided by the final number of Purchased Shares issued to the
Purchasers pursuant to Section 2.1(b) (after giving effect
to any adjustments provided for in Sections 2.1(b)(ii)(B)
and (C)), as father adjusted to reflect any stock dividends,
stock splits or other subdivisions, combinations,
recapitalizations or reorganizations affecting the Common Stock
between the Closing Date and such issuance date.
Financial Statements has the meaning set
forth in Section 3.7(b).
Financing has the meaning set forth in
Section 4.11.
Financing Commitment has the meaning set
forth in Section 4.11.
GAAP has the meaning set forth in
Section 3.7(b)
Governmental Authority means any government
or political subdivision or department thereof, any governmental
or regulatory body, commission, board, bureau, agency or
instrumentality, or any court or arbitrator or alternative
dispute resolution body, in each case whether federal, state,
local, foreign or supranational.
Intellectual Property has the meaning set
forth in Section 3.12.
Investment has the meaning set forth in the
recitals.
Investor has the meaning set forth in the
preamble.
Investor Approvals has the meaning set forth
in Section 4.3(b).
Investor Confidentiality Agreement means the
confidentiality letter agreement dated March 20, 2007
between MatlinPatterson Global Opportunities Partners II,
L.P. and the Company.
Investor Designated Directors means those
individuals who shall have been designated by the Investor as
Investor Designated Directors by written notice
given to the Company not later than five (5) Business Days
prior to the Closing Date.
Investor Disclosure Letter means the letter
dated the date hereof delivered by the Investor to the Company,
which letter relates to this Agreement and is designated therein
as the Investor Disclosure Letter.
Investor Indemnified Party has the meaning
set forth in Section 7.2.
JV Entities means, collectively, the FATV JV
Entities, the NAFA Capital JV Entities and each of the
Companys Employee Investment Funds.
Knowledge of the Company means the actual
knowledge of the officers of the Company who have been
designated in the Company Disclosure Letter as having
Knowledge of the Company, after reasonable inquiry
of any business unit heads or function heads who would
reasonably be expected to have relevant knowledge in respect of
the matter in question.
Lender Warrants mean the Common Stock
purchase warrants issued to the purchasers of the Senior Notes
dated June 13, 2003, initially exercisable for the purchase
of 437,000 shares of Common Stock.
Liens means security interests, liens,
claims, pledges, mortgages, options, rights of first refusal,
agreements, limitations on voting rights, charges, easements,
servitudes, encumbrances and other restrictions of any nature
whatsoever.
Material Lease has the meaning set forth in
Section 3.16(b).
MCMG Employee means any employee of the
Company or the Subsidiaries who was an employee of the Municipal
Capital Markets Group of the Companys wholly-owned
subsidiary, First Albany Capital Inc. as of the date of the
DEPFA Agreement.
Measurement Date has the meaning set forth in
Section 2.1(b)(ii)(B).
Measurement Date Balance Sheet has the
meaning set forth in Section 2.1(b)(ii)(B).
Measurement Date Pro Forma Balance Sheet has
the meaning set forth in Section 2.1(b)(ii)(B).
A-35
NAFA Capital JV Entities means NAFA Capital
Markets [Inc.] or any subsidiary.
NASD means the National Association of
Securities Dealers, Inc. and its subsidiaries.
Net Purchase Price has the meaning set forth
in Section 2.1.
Net Tangible Book Value as of the Measurement
Date shall mean total consolidated shareholders equity less
intangible assets, all as shown on the Measurement Date
Balance Sheet.
Net Tangible Book Value Per Share as of the
Measurement Date shall mean the Net Tangible Book Value as of
the Measurement Date divided by the number of shares of
Common Stock outstanding as of the date of the Net Tangible Book
Value Report.
Non-Continuing Directors means those current
members of the Board as have been identified as
Non-Continuing Directors in the Investor Disclosure
Letter.
NTBV Adjustment Factor has the meaning set
forth in Section 2.1(b)(ii)(A).
NYBCL means the New York Business Corporation
Law.
Organizational Document means, with respect
to the Company or any Subsidiary, any certificate or articles of
incorporation, memorandum of association, by-laws, partnership
agreement, limited liability agreement, operating agreement,
trust agreement or other agreement, instrument or document
governing the affairs of the Company or such Subsidiary.
Person means any individual, Business Entity,
unincorporated association or Governmental Authority.
Preferred Stock means the preferred stock,
par value $0.01 per share, of the Company.
Preliminary Net Tangible Book Value Per Share
has the meaning set forth in Section 2.1(b)(ii)(B).
Preliminary Net Tangible Book Value Report
has the meaning set forth in Section 2.1(b)(ii)(B).
Preliminary NTBV Adjustment Factor has the
meaning set forth in Section 2.1(b)(ii)(B).
Proxy Statement has the meaning set forth in
Section 5.2(a).
Purchased Shares has the meaning set forth in
Section 2.1(b), as modified by Section 7.6.
Purchase Price has the meaning set forth in
Section 2.1(a).
Purchasers has the meaning set forth in
Section 2.1(c).
Registration Rights Agreement means a
Registration Rights Agreement substantially in the form of
Exhibit F.
Reimbursable Expenses has the meaning set
forth in Section 8.2(b).
Requirement of Law means any judgment, order
(whether temporary, preliminary or permanent), writ, injunction,
decree, statute, rule, regulation, notice, law or ordinance and
shall also include any regulations of any applicable self
regulatory organizations.
Representatives has the meaning set forth in
Section 5.3(a).
Restricted Stock means any shares of Common
Stock issued or issuable pursuant to a Restricted Stock Award.
Restricted Stock Award means any award
granted under an Employee Stock Incentive Plan of
(i) shares of Restricted Stock or (ii) restricted
stock units or other rights to acquire shares of Restricted
Stock.
Rights has the meaning set forth in the
Rights Agreement.
Rights Agreement means the Rights Agreement
dated as of March 30, 1998 between the Company and American
Stock Transfer & Trust Company, as Rights Agent, as
amended.
Sarbanes-Oxley has the meaning set forth in
Section 3.8(a).
A-36
Schedules means the Schedules to the Company
Disclosure Letter.
SEC means the Securities and Exchange
Commission.
SEC Reports has the meaning set forth in
Section 3.7(a)
Securities Act means the Securities Act of
1933, as amended, together with the rules and regulations
promulgated thereunder.
Shareholder Approvals has the meaning set
forth in Section 5.2(a).
Shareholder Meeting has the meaning set forth
in Section 5.2(a).
Special Committee has the meaning set forth
in the recitals.
Stock Purchase Rights has the meaning set
forth in Section 3.2(d).
Strategic Plan has the meaning set forth in
Section 5.6.
Subsidiary means any Business Entity of which
the Company (either alone or through or together with one or
more other Subsidiaries) (x) owns, directly or indirectly,
more than 50% of the stock or other equity interests the holders
of which are generally entitled to vote for the election of the
board of directors or other governing body of such Business
Entity, (y) is a general partner, managing member, trustee
or other Person performing similar functions or (z) has
control (as defined in Rule 405 under the Securities Act).
For the purposes of the representations and warranties of the
Company made in Sections 3.6, 3.9, 3.11, 3.12, 3.15, 3.17,
3.19, 3.21, 3.22 and 3.25, each of the JV Entities shall be
deemed to be a Subsidiary of the Company, provided that the
Company shall be deemed to make such representations and
warranties with respect to such JV Entities only (x) to the
extent of the Knowledge of the Company (which, for
the purpose of this proviso shall be deemed to mean the actual
knowledge of George McNamee as well as of the designated
individuals referred to in the definition of such phrase, but
without any obligation on the part of any such individual to
make due inquiry of any other Person) and (y) to the extent
that the inaccuracy of such representations and warranties would
not reasonably be expected, individually or in the aggregate, to
have a Company Material Adverse Effect.
Superior Competing Transaction has the
meaning set forth in Section 5.3(e).
Surviving Representations has the meaning set
forth in Section 7.1.
Tax Indemnity Shares has the meaning set
forth in Section 7.6.
Tax Return means any return, report or
similar statement (including the attached schedules) required to
be filed with respect to any Tax, including, without limitation,
any information return, claim for refund, amended return or
declaration of estimated Tax.
Tax means any tax, governmental fee or other
like assessment or charge of any kind whatsoever (including any
tax imposed under Subtitle A of the Code and any net income,
alternative or add-on minimum tax, gross income, gross receipts,
sale, bulk sales, use, real property, personal property, ad
valorem, value added, transfer, franchise, profits, license,
withholding tax on amounts paid, withholding, payroll,
employment, excise severance, stamp, capital stock, occupation,
property, environmental or windfall profits tax, premium,
custom, duty or other tax or assessment), together with any
interest, penalty, addition to tax or additional amount thereto,
imposed by any Governmental Authority.
Taxing Authority means any Governmental
Authority (domestic or foreign) responsible for the imposition
of any Tax.
Transactions has the meaning set forth in the
recitals.
Transactions Approval has the meaning set
forth in Section 5.2(a).
Treasury Regulations means the final and
temporary regulations promulgated by the United States Treasury
Department from time to time under the Code.
Voting Agreements has the meaning set forth
in the recitals.
A-37
Exhibit B
to
Investment Agreement
Form of Opinion of Sidley Austin LLP
[SIDLEY
AUSTIN LLP LETTERHEAD]
[ ]1,
2007
[ ]2
677 Broadway
Albany, NY 12207
Attention: Peter McNierney
Re: First
Albany Recapitalization
Ladies and Gentlemen:
We have acted as counsel for MatlinPatterson FA Acquisition LLC,
a Delaware limited liability company (the Investor),
in connection with the issuance and sale by
[ ]3
(f/k/a First Albany Companies, Inc.), a New York
corporation (the Company) of certain Purchased
Shares consisting of shares of the Companys common
stock, $0.01 par value per share (the Common
Stock) pursuant to that certain Investment Agreement,
dated as of May 14, 2007 (the Investment
Agreement), between the Company and the Investor. This
opinion is being rendered to you at the request of the Investor
pursuant to Section 2.3(d) of the Investment Agreement.
Unless otherwise defined herein, terms used herein which are
defined in the Investment Agreement shall have the respective
meanings set forth in the Investment Agreement. Capitalized
terms used and not otherwise defined herein shall have the
respective meanings ascribed to them in the Investment Agreement.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate
records, certificates of public officials and officers and other
representatives of the Investor, and such other agreements,
instruments and documents as we have deemed necessary or
appropriate for purposes of rendering the opinions expressed
below.
In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the
competency of all individuals signing all documents presented to
us, the conformity to original documents of all documents
submitted to us as certified, facsimile or photostatic copies,
or as retrieved from the U.S. Securities and Exchange
Commissions EDGAR database, the authenticity of the
originals of such latter documents and the correctness of all
statements of fact in all documents examined by us. We have
further assumed (i) that all parties to the foregoing
documents are validly existing and in good standing under the
laws of all jurisdictions where they are conducting their
businesses or are otherwise required to be so qualified (other
than the Investor, to the extent indicated below), and have full
power and authority and all necessary consents and approvals to
execute, deliver and perform under such documents (other than
the Investor, to the extent indicated below), (ii) that all
such documents have been duly authorized by all necessary
corporate or other action on the part of the parties thereto,
have been duly executed by such parties and have been duly
delivered by such parties (other than the Investor, to the
extent indicated below), (iii) that all such documents
constitute the legal, valid and binding obligations of each
party thereto enforceable against such party in accordance with
its terms (other than the Investor, to the extent indicated
below) and (iv) the compliance with all covenants,
contained in or made pursuant to the agreements, instruments,
records, certificates and other documents we have reviewed
(including, without limitation, the Investment Agreement and the
Registration Rights Agreement) as of their stated dates and as
of the date hereof. As to any facts material to the opinions
expressed herein which were not independently established or
verified, we have, with your consent, relied upon oral or
written statements of the Investor and its officers and
representatives and public officials and sources believed to be
reliable
1 Insert
Closing Date
2 Insert
current name of the Company
3 Insert
current name of the Company
A-38
(including, without limitation, the representations, covenants
and agreements of the Company and the Investor contained in the
Investment Agreement). We have not independently established the
facts so relied upon.
Based upon the foregoing and our examination of such questions
of law as we have deemed necessary or appropriate, and subject
to the limitations and qualifications set forth below, it is our
opinion that:
1. The Investor is a limited liability company validly
existing and in good standing under the laws of the State of
Delaware.
2. The Investor has the limited liability company power and
authority to execute, deliver and perform the Investment
Agreement and the Registration Rights Agreement and to
consummate the transactions contemplated thereby.
3. The Investment Agreement and the Registration Rights
Agreement have each been duly authorized, executed and delivered
by the Investor and each constitutes a legal, valid and binding
agreement of the Investor enforceable against it in accordance
with its terms.
4. The purchase by the Investor of Purchased Shares as
contemplated by the Investment Agreement will not,
(a) conflict with or violate the certificate of formation
or limited liability company agreement of the Investor,
(b) conflict with or violate any judgment, order or decree
of any court or governmental authority which to our knowledge is
applicable to the Investor or any of its properties,
(c) result in a material violation, or conflict with, the
Delaware Limited Liability Company Act or any U.S. federal
or New York State statute, rule or regulation, in any case known
to us to be applicable to the Investor or (d) result in a
material default by the Investor under any material contract or
agreement to which the Investor is a party that is known to us.
5. No consent, approval or authorization of or designation,
declaration or filing with, any U.S. federal or New York
State Governmental Authority on the part of the Investor is
required in connection with the purchase of the Purchased
Shares, other than (a) such as have been made or obtained
and (b) compliance with the Blue Sky laws or federal
securities laws applicable to the sale of the Purchased Shares.
Our opinions are subject to (a) bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or similar laws
of general application now or hereafter in effect affecting the
rights and remedies of creditors; (b) general principles of
equity (regardless of whether enforceability is considered in a
proceeding at law or in equity); (c) the effect of judicial
decisions which have held that certain provisions are
unenforceable when their enforcement would violate the implied
covenant of good faith and fair dealing, or would be
commercially unreasonable, or where their breach is not
material; or (d) the discretion of the court before which
any proceeding therefor may be brought, and except as the right
to indemnification or contribution set forth in the Investment
Agreement or Registration Rights Agreement may be limited by
public policy or applicable securities laws. In addition,
indemnities, rights of contribution, exculpatory provisions,
non-competition and non-solicitation restrictions and waivers
may be limited on public policy grounds.
You should be aware that an opinion of counsel represents our
best legal judgment, which may be subject to challenge by any
governmental agency and is not binding on any governmental
agency or the courts. Our opinion is based on existing laws,
judicial decisions and administrative regulations, rulings and
practice, all of which are subject to change at any time,
prospectively and retroactively. New developments in rulings of
any agency, administrative regulations, court decisions,
legislative changes or changes in the facts or other information
upon which our opinion is based may have an adverse effect on
the legal consequences described herein. Any such change could
be retroactive so as to apply to any of the transactions
contemplated by the Investment Agreement.
Any opinion or statement herein which is expressed to be based
on our knowledge or is otherwise qualified by words
of like import means that the lawyers currently practicing law
with Sidley Austin LLP who have had an active involvement in
negotiating or reviewing the Investment Agreement have no
current conscious awareness of any facts or information contrary
to such opinion or statement. With respect to such matters, such
persons, with your express permission and consent, have not
undertaken any investigation or inquiry of other lawyers
practicing law with this firm, or any review of files maintained
by this firm, or any inquiry of officers or representatives of
the Investor or any of its affiliates. The reference to
conscious awareness in this paragraph has the
meaning given that
A-39
phrase in the Third-Party Legal Opinion Report, Including the
Legal Opinion Accord, of the Section of Business Law, American
Bar Association, 47 Bus. Law. 167, 192 (1991).
The foregoing opinion is limited to the laws of the State of New
York, the federal laws of the United States and the Delaware
Limited Liability Company Act and we render no opinion with
respect to the laws of any other jurisdiction. This opinion
letter is rendered as of the date hereof, and we assume no
obligation to update such opinion letter to reflect any facts or
circumstances which may hereafter come to our attention or any
changes in the law which may hereafter occur.
This letter is being delivered to you solely for your
information in connection with the transaction contemplated by
the Investment Agreement. Our opinions set forth in this letter
may not be relied upon, used, circulated, summarized, referred
to or quoted by any other person, firm, corporation, partnership
or other entity, in whole or in part, without our prior written
consent.
Very truly yours,
A-40
Exhibit C
to
Investment Agreement
List of Closing Deliveries
Part I. Deliveries by the Purchasers
1. The officers certificate contemplated to be
delivered by the Purchasers pursuant to Section 6.1(f).
2. A copy, certified by the Secretary of State of the
State of Delaware as of a date not more than three
(3) Business Days prior to the Closing Date, of the
certificate of formation of the Investor, with all amendments
thereto.
3. A certificate of good standing for the Investor
issued by the Secretary of State of the State of Delaware as of
a date that is not more than three (3) Business Days prior
to the Closing Date.
4. A certificate of the Secretary or an Assistant
Secretary of the Investor, dated the Closing Date, in form and
substance reasonably satisfactory to the Company, as to
(i) no amendments to the certificate of formation of the
Investor since the date of the certified copy thereof listed in
item 2 above, (ii) the operating agreement of the
Investor, (iii) the resolutions of the board or similar
governing body or members authorizing the execution, delivery
and performance of this Agreement and the Registration Rights
Agreement and (iv) incumbency and signatures of the
officers, members or managing member, as applicable, of the
Investor executing this Agreement, the Registration Rights
Agreement and any other certificates or documents executed and
delivered by the Investor in connection with the Transactions.
Part II. Deliveries by the Company
1. The officers certificate contemplated to be
delivered by the Company pursuant to Section 6.2(i).
2. A copy, certified by the Secretary of State of the
State of New York as of a date not more than three
(3) Business Days prior to the Closing Date, of the
articles of incorporation of the Company, with all amendments
thereto (including the Charter Amendment).
3. A certificate of good standing for the Company
issued by the Secretary of State of the State of New York as of
a date that is not more than three (3) Business Days prior
to the Closing Date.
4. A certificate of the Secretary or an Assistant
Secretary of the Company, dated the Closing Date, in form and
substance reasonably satisfactory to the Investor, as to
(i) no amendments to the articles of incorporation of the
Company since the date of the certified copy thereof listed in
item 2 above, (ii) the by-laws of the Company,
(iii) the resolutions of the Board authorizing the
execution, delivery and performance of this Agreement and the
Registration Rights Agreement and approving the Charter
Amendment, (iv) the resolutions of the Board increasing the
size of the Board to nine directors, appointing the Investor
Designated Directors to serve as directors of the Company and
changing the composition of the Board committees consistent with
Section 5.5(b), (v) written evidence in form and
substance reasonably satisfactory to the Investor of the Company
Shareholders approving the Shareholder Approvals and
(vi) incumbency and signatures of the officers of the
Company executing this Agreement, the Registration Rights
Agreement and any other certificates or documents executed and
delivered by the Company in connection with the Transactions.
5. The resignation, in form and substance reasonably
satisfactory to the Investor, of each Non-Continuing Director
from his or her position as a director of the Company.
6. A copy, certified by the Secretary or an Assistant
Secretary of the Company as of the Closing Date, of the
amendment to the Rights Agreement or other action taken under
Section 3.26.
A-41
Exhibit D
to
Investment Agreement
Form of Opinion of Dewey Ballantine LLP
[DEWEY BALLANTINE LETTERHEAD]
[ ]1,
2007
To each of the Persons listed
on Appendix I hereto
c/o MatlinPatterson
Global Advisers II LLC
520 Madison Avenue,
35th Floor
New York, New York 10022
Attention: General Counsel
Re: First Albany Recapitalization
Ladies and Gentlemen:
We have acted as counsel for
[ ]2
(f/k/a First Albany Companies, Inc.), a New York corporation
(the Company), in connection with the issuance and
sale by the Company of certain Purchased Shares
consisting of shares of the Companys common stock,
$0.01 par value per share (the Common Stock)
pursuant to that certain Investment Agreement, dated as of
May 14, 2007 (the Investment Agreement),
between the Company and MatlinPatterson FA Acquisition LLC (the
Investor). This opinion is being rendered to you at
the request of the Company pursuant to Section 2.4(d) of
the Investment Agreement. Unless otherwise defined herein, terms
used herein which are defined in the Investment Agreement shall
have the respective meanings set forth in the Investment
Agreement. Capitalized terms used and not otherwise defined
herein shall have the respective meanings ascribed to them in
the Agreement.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate
records, certificates of public officials and officers and other
representatives of the Company, and such other agreements,
instruments and documents as we have deemed necessary or
appropriate for purposes of rendering the opinions expressed
below.
In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the
competency of all individuals signing all documents presented to
us, the conformity to original documents of all documents
submitted to us as certified, facsimile or photostatic copies,
or as retrieved from the U.S. Securities and Exchange
Commissions EDGAR database, the authenticity of the
originals of such latter documents and the correctness of all
statements of fact in all documents examined by us. We have
further assumed (i) that all parties to the foregoing
documents are validly existing and in good standing under the
laws of all jurisdictions where they are conducting their
businesses or are otherwise required to be so qualified (other
than the Company, to the extent indicated below), and have full
power and authority and all necessary consents and approvals to
execute, deliver and perform under such documents (other than
the Company, to the extent indicated below), (ii) that all
such documents have been duly authorized by all necessary
corporate or other action on the part of the parties thereto,
have been duly executed by such parties and have been duly
delivered by such parties (other than the Company, to the extent
indicated below), (iii) that all such documents constitute
the legal, valid and binding obligations of each party thereto
enforceable against such party in accordance with its terms
(other than the Company, to the extent indicated below) and
(iv) the compliance with all covenants, contained in or
made pursuant to the agreements, instruments, records,
certificates and other documents we have reviewed (including,
without limitation, the Investment Agreement and the
Registration Rights Agreement) as of their stated dates and as
of the date hereof. As to any facts material to the opinions
expressed herein which were not independently established or
verified, we have, with your consent, relied upon oral or
written statements of the Company and its officers and
representatives and public officials and sources believed to be
1 Insert
Closing Date
2 Insert
current name of the Company
A-42
reliable (including, without limitation, the representations,
covenants and agreements of the Company and the Investor
contained in the Investment Agreement). We have not
independently established the facts so relied upon.
We have further assumed for the purpose of this opinion that the
certificates representing the Purchased Shares being sold by the
Company to the Purchasers will conform as to form to the forms
thereof examined by us, which assumption we have not
independently verified. In addition, we have assumed for the
purpose of this opinion that (i) neither the Company nor
any Person acting on its behalf has engaged in any general
solicitation or general advertising within the meaning of
Rule 502(c) promulgated under the Securities Act with
respect to the offer and sale of the Purchased Shares and
(ii) neither the Company nor any other Person will, after
the time of delivery of this opinion, take or omit to take any
action which would cause such offer and sale not to constitute
an exempt transaction under the Securities Act. Further, and
without limiting the generality of the foregoing assumptions, in
rendering the opinion expressed herein we have relied on the
representation of each Purchaser contained in the Investment
Agreement or applicable Co-Investor Joinder Agreement that such
Purchaser qualifies as an accredited investor within
the meaning of Rule 501 promulgated under the Securities
Act.
Based upon the foregoing and our examination of such questions
of law as we have deemed necessary or appropriate, and subject
to the limitations and qualifications set forth below, it is our
opinion that:
1. The Company is a corporation validly existing and
in good standing under the laws of the State of New York.
2. The Company has the corporate power and authority
to execute, deliver and perform the Investment Agreement and the
Registration Rights Agreement and to consummate the transactions
contemplated thereby.
3. The Investment Agreement and the Registration
Rights Agreement have been duly authorized, executed and
delivered by the Company and each constitutes a legal, valid and
binding agreement of the Investor enforceable against it in
accordance with its terms. When issued and delivered in
accordance with the terms of the Investment Agreement against
payment of the purchase price therefor, the Purchased Shares
will be validly issued, full paid and nonassessable. When issued
to the Purchasers as contemplated by the Investment Agreement,
each Right associated with each Purchased Share will have been
validly issued in accordance with the terms of the Rights
Agreement.
4. The issuance and sale of the Purchased Shares as
contemplated by the Investment Agreement will not,
(a) conflict with or violate the articles of incorporation
or bylaws of the Company, (b) conflict with or violate any
judgment, order or decree of any court or other
U.S. federal or New York State governmental authority which
to our knowledge is applicable to the Company or any of its
properties, (c) result in a material violation, or conflict
with, any U.S. federal or New York State statute, rule or
regulation, in any case known to us to be applicable to the
Company or (d) result in a material default by the Company
under any of the contracts or agreements filed as exhibits to
the SEC Reports.
6. No consent, approval or authorization of or
designation, declaration or filing with, any U.S. federal
or New York State governmental authority on the part of the
Company is required in connection with the issuance or sale of
the Purchased Shares, other than (a) such as have been made
or obtained; (b) compliance with the Blue Sky laws or
federal securities laws applicable to the issuance and sale of
the Purchased Shares; and (c) the filing of a registration
statement in accordance with the requirements of the
Registration Rights Agreement.
7. Assuming (i) the accuracy and completeness of
the representations and warranties of each Purchaser set forth
in the Investment Agreement or applicable Co-Investor Joinder
Agreement and (ii) that neither the Company nor any other
Person has engaged in any activity that would be deemed a
general solicitation under the provisions of
Regulation D under the Securities Act, the issuance and
sale of the Purchased Shares to the Purchasers in accordance
with the Investment Agreement constitutes a transaction exempt
from the registration requirements of Section 5 of the
Securities Act (it being understood that we express no opinion
as to any subsequent resales of the Purchased Shares by any
Purchaser).
8. The issuance and sale of the Purchased Shares as
contemplated in the Investment Agreement will not cause any of
the Purchasers to be deemed to be an Acquiring
Person as defined in the Rights Agreement.
A-43
Our opinions are subject to (a) bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or similar laws
of general application now or hereafter in effect affecting the
rights and remedies of creditors; (b) general principles of
equity (regardless of whether enforceability is considered in a
proceeding at law or in equity); (c) the effect of judicial
decisions which have held that certain provisions are
unenforceable when their enforcement would violate the implied
covenant of good faith and fair dealing, or would be
commercially unreasonable, or where their breach is not
material; or (d) the discretion of the court before which
any proceeding therefor may be brought, and except as the right
to indemnification or contribution set forth in the Investment
Agreement or Registration Rights Agreement may be limited by
public policy or applicable securities laws. In addition,
indemnities, rights of contribution, exculpatory provisions,
non-competition and non-solicitation restrictions and waivers
may be limited on public policy grounds.
You should be aware that an opinion of counsel represents our
best legal judgment, which may be subject to challenge by any
governmental agency and is not binding on any governmental
agency or the courts. Our opinion is based on existing laws,
judicial decisions and administrative regulations, rulings and
practice, all of which are subject to change at any time,
prospectively and retroactively. New developments in rulings of
any agency, administrative regulations, court decisions,
legislative changes or changes in the facts or other information
upon which our opinion is based may have an adverse effect on
the legal consequences described herein. Any such change could
be retroactive so as to apply to any of the transactions
contemplated by the Investment Agreement.
Any opinion or statement herein which is expressed to be based
on our knowledge or is otherwise qualified by words
of like import means that the lawyers currently practicing law
with Dewey Ballantine LLP who have had an active involvement in
negotiating or reviewing the Investment Agreement have no
current conscious awareness of any facts or information contrary
to such opinion or statement. With respect to such matters, such
persons, with your express permission and consent, have not
undertaken any investigation or inquiry of other lawyers
practicing law with this firm, or any review of files maintained
by this firm, or any inquiry of officers or representatives of
the Company or any of its affiliates. The reference to
conscious awareness in this paragraph has the
meaning given that phrase in the Third-Party Legal Opinion
Report, Including the Legal Opinion Accord, of the Section of
Business Law, American Bar Association, 47 Bus. Law. 167, 192
(1991).
The foregoing opinion is limited to the laws of the State of New
York and the federal laws of the United States and we render no
opinion with respect to the laws of any other jurisdiction. This
opinion letter is rendered as of the date hereof, and we assume
no obligation to update such opinion letter to reflect any facts
or circumstances which may hereafter come to our attention or
any changes in the law which may hereafter occur.
This letter is being delivered to you solely for your
information in connection with the transaction contemplated by
the Agreement. Our opinions set forth in this letter may not be
relied upon, used, circulated, summarized, referred to or quoted
by any other person, firm, corporation, partnership or other
entity, in whole or in part, without our prior written consent.
Very truly yours,
A-44
Appendix I
to
Opinion of Dewey Ballantine LLP
Addressees
MatlinPatterson FA Acquisition LLC
[list each other Purchaser]
A-45
Exhibit E
to
Investment Agreement
Form of Financing Commitment
MatlinPatterson Global Opportunities Partners II, L.P.
MatlinPatterson Global Opportunities Partners
(Cayman) II, L.P.
c/o MatlinPatterson
Global Advisers LLC
520 Madison Avenue,
35th Floor
New York, New York 10022
May 14, 2007
MatlinPatterson FA Acquisition LLC
c/o MatlinPatterson
Global Advisers LLC
520 Madison Avenue,
35th Floor
New York, New York 10022
Re: Financing Commitments
Gentlemen:
MatlinPatterson FA Acquisition LLC (MP Acquisition)
proposes to enter into an Investment Agreement of even date
herewith (the Investment Agreement) with First
Albany Companies Inc. (First Albany) pursuant to
which MP Acquisition and certain co-investors (collectively,
together with MP Acquisition, the Purchasers) are to
acquire certain shares of Common Stock of First Albany (the
Shares) representing a majority of the outstanding
Common Stock for an aggregate Purchase Price (as defined in the
Investment Agreement) of $50 million.
The undersigned MatlinPatterson Global Partners II, L.P.
(MP GOP II) and MatlinPatterson GOP II
(Cayman) II, L.P. (MP GOP II (Cayman) and,
together with MP GOP II, the MP Funds) are
pleased to advise you of their several commitments (the
Commitments) to provide financing to MP Acquisition
(the Financing) in an aggregate amount sufficient to
enable MP Acquisition to pay the Net Purchase Price required to
be paid by it under the Investment Agreement and to fund related
transaction costs, provided that the amount of the Commitment of
each of the MP Funds will be reduced pro rata to the extent that
any Co-Investor (as defined in the Investment Agreement)
actually purchases and pays for a portion of the Shares.
73.6361% of the Financing will be provided by MP GOP II and
the remaining 26.3639% will be provided by MP GOP II
(Cayman). The Financing shall take the form of such loans or
capital contributions to MP Acquisition, or a combination
thereof, as the parties shall agree upon. The obligations of the
MP Funds to provide the Financing shall be subject to the
satisfaction (or waiver, with the consent of the MP Funds) of
each of the conditions set forth in the Investment Agreement to
the obligations of the Purchasers to acquire the Shares.
The MP Funds may elect to provide all or part of the Financing
through one or more affiliated entities.
Each of MP Acquisition and the MP Funds agree and acknowledge
that First Albany is an intended third party beneficiary of the
Financing.
By countersigning this letter, MP Acquisition hereby represents
and warrants to each of the MP Funds that MP Acquisition has
delivered to the MP Funds a fully signed copy of the Investment
Agreement.
This commitment letter and the commitment of the MP Funds
hereunder shall not be assignable by MP Acquisition to any other
person without the prior written consent of each of the MP Funds
and First Albany, and any attempted assignment without such
consent shall be void. This commitment letter may not be amended
or any provision hereof waived or modified except by an
instrument in writing signed by each of the parties hereto. This
commitment letter may be executed in any number of counterparts,
each of which shall be an original and all of which, when taken
together, shall constitute one agreement. Delivery of an
executed counterpart of a signature page of this commitment
letter by facsimile transmission shall be effective as delivery
of a manually executed
A-46
counterpart of this commitment letter. This commitment letter
sets forth the entire understanding with respect to the subject
matter hereof and supersedes any prior understandings with
respect thereto, written or oral. This commitment letter is
solely for the benefit of the parties hereto and is not intended
to confer any benefits upon, or create any rights in favor of,
any person other than the parties hereto. This commitment letter
shall be governed by, and construed in accordance with, the laws
of the State of New York.
Very truly yours,
MATLINPATTERSON FA ACQUISITION LLC
Name:
Accepted and agreed to as of
the date first above written:
MATLINPATTERSON GLOBAL OPPORTUNITIES II, L.P.
By MatlinPatterson Global Opportunities II LLC,
its general partner
Name:
MATLINPATTERSON GLOBAL OPPORTUNITIES
(CAYMAN) II, L.P.
By MatlinPatterson Global Opportunities II LLC, its
general partner
Name:
FIRST ALBANY COMPANIES INC.
as intended third party beneficiary
Name:
Title:
A-47
Exhibit F
to
Investment Agreement
REGISTRATION
RIGHTS AGREEMENT
dated as of
[ ]*,
2007
between
[ ]
and
MATLINPATTERSON FA ACQUISITION LLC
* Insert
Closing Date
Insert
new name of the Company
A-48
REGISTRATION
RIGHTS AGREEMENT
Registration Rights Agreement (this
Agreement) dated as of
[ ],
2007 by and among
[ ]§
(f/k/a First Albany Companies Inc.), a Delaware corporation (the
Company), MATLINPATTERSON FA ACQUISITION LLC, a
Delaware limited liability company (the Principal
Investor), and the other Persons who have executed this
Agreement as Other Investors (the Other
Investors and, together with the Principal Investor, the
Investors).
RECITALS
WHEREAS, pursuant to that certain Investment Agreement dated as
of May [ ], 2007, by and between the Company and the
Principal Investor (the Investment Agreement) and to
which the Other Investors have become parties by execution of
joinder agreements, the Company has issued to the Investors
shares (the Shares) of the Common Stock (as defined
below) and has agreed to enter into this Agreement to provide
the Investors with certain registration rights in respect of
such shares; and
WHEREAS, the parties hereto hereby desire to set forth the
Companys obligations to cause the registration of the
Registrable Securities (as defined below) pursuant to the
Securities Act (as defined below) and applicable state
securities laws;
NOW, THEREFORE, in consideration of the purchase by the
Investors of the Shares pursuant to the Investment Agreement,
and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Definitions
and Usage.
As used in this Agreement:
1.1. Definitions.
Agent means the principal placement agent on
an agented placement of Registrable Securities.
Commission shall mean the Securities and
Exchange Commission.
Common Stock shall mean (i) the common
stock, par value $.01 per share, of the Company, and
(ii) shares of capital stock of the Company issued by the
Company in respect of or in exchange for shares of such common
stock in connection with any stock dividend or distribution,
stock
split-up,
recapitalization, recombination or exchange by the Company
generally of shares of such common stock.
Continuously Effective, with respect to a
specified registration statement, shall mean that it shall not
cease to be effective and available for Transfers of Registrable
Securities thereunder for longer than either (i) any thirty
(30) consecutive business days, or (ii) an aggregate
of sixty (60) business days during any twelve
(12) month period.
Demand Registration shall have the meaning
set forth in Section 2.1(i).
Demanding Holders shall have the meaning set
forth in Section 2.1(i).
Exchange Act shall mean the Securities
Exchange Act of 1934, as amended.
Holder shall mean any Investor and any
Transferee of any Registrable Securities from a Holder, to the
extent that such Transferee shall have been assigned rights
under this Agreement in accordance with Section 8, in each
case at such times as such Person shall own any Registrable
Securities.
Initial Public Offering means first offering
of shares of Common Stock registered pursuant to the Securities
Act.
Initiating Substantial Holder shall have the
meaning set forth in Section 2.2.
Insert
Closing Date
§ Insert
new name of the Company
A-49
Investment Agreement shall have the meaning
set forth in the Recitals.
Majority Selling Holders means those Selling
Holders whose Registrable Securities included in such
registration represent a majority of the Registrable Securities
of all Selling Holders included therein.
Person shall mean any individual,
corporation, partnership, joint venture, association,
joint-stock company, limited liability company, trust,
unincorporated organization or government or other agency or
political subdivision thereof.
Piggyback Registration shall have the meaning
set forth in Section 3.
Register, registered, and
registration shall refer to a registration
effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the
declaration or ordering by the Commission of effectiveness of
such registration statement or document.
Registrable Securities shall mean, subject to
Section 8 and Section 10.3: (i) the Shares owned
by Holders on the date hereof, (ii) any shares of Common
Stock or other securities issued as (or issuable upon the
conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with
respect to, or in exchange by the Company generally for, or in
replacement by the Company generally of, such Shares (or other
Registrable Securities); and (iii) any securities issued in
exchange for Shares (or other Registrable Securities) in any
merger or reorganization of the Company; provided, however, that
Registrable Securities shall not include any securities which
have theretofore been registered and sold pursuant to the
Securities Act or which have been sold to the public pursuant to
Rule 144 or any similar rule promulgated by the Commission
pursuant to the Securities Act, and, provided, further, the
Company shall have no obligation under Sections 2 and 3 to
register any Registrable Securities of a Holder if the Company
shall deliver to such Holder requesting such registration an
opinion of counsel reasonably satisfactory to such Holder and
its counsel to the effect that the proposed sale or disposition
of all of the Registrable Securities for which registration was
requested does not require registration under the Securities Act
for a sale or disposition in a single public sale, and offers to
remove any and all legends restricting transfer from the
certificates evidencing such Registrable Securities. For
purposes of this Agreement, a Person will be deemed to be a
holder of Registrable Securities whenever such Person has the
then-existing right to acquire such Registrable Securities (by
conversion, purchase or otherwise), whether or not such
acquisition has actually been effected.
Registrable Securities then outstanding shall
mean, with respect to a specified determination date, the
Registrable Securities owned by all Holders on such date.
Registration Expenses shall have the meaning
set forth in Section 6.1.
Securities Act shall mean the Securities Act
of 1933, as amended.
Selling Holders shall mean, with respect to a
specified registration pursuant to this Agreement, Holders whose
Registrable Securities are included in such registration.
Shares shall have the meaning set forth in
the Recitals.
Shelf Registration shall have the meaning set
forth in Section 2.2.
Substantial Holder shall mean any Holder that
owned on the date of this Agreement 25% or more of the
Registrable Securities then outstanding and such Transferee, if
any, to whom such Person Transfers Registrable Securities and
assigns such Substantial Holders rights as a Substantial
Holder as permitted by Section 8.
Transfer shall mean and include the act of
selling, giving, transferring, creating a trust (voting or
otherwise), assigning or otherwise disposing of (other than
pledging, hypothecating or otherwise transferring as security)
(and correlative words shall have correlative meanings);
provided, however, that any transfer or other disposition upon
foreclosure or other exercise of remedies of a secured creditor
after an event of default under or with respect to a pledge,
hypothecation or other transfer as security shall constitute a
Transfer.
A-50
Underwriters Representative shall mean
the managing underwriter, or, in the case of a co-managed
underwriting, the managing underwriter designated as the
Underwriters Representative by the co-managers.
Violation shall have the meaning set forth in
Section 7.1.
1.2. Usage.
(i) References to a Person are also references to its
assigns and successors in interest (by means of merger,
consolidation or sale of all or substantially all the assets of
such Person or otherwise, as the case may be).
(ii) References to Registrable Securities owned
or held by a Holder shall include Registrable
Securities beneficially owned by such Person but which are held
of record in the name of a nominee, trustee, custodian, or other
agent, but shall exclude shares of Common Stock held by a Holder
in a fiduciary capacity for customers of such Person.
(iii) References to a document are to it as amended, waived
and otherwise modified from time to time and references to a
statute or other governmental rule are to it as amended and
otherwise modified from time to time (and references to any
provision thereof shall include references to any successor
provision).
(iv) References to Sections or to Schedules or Exhibits are
to sections hereof or schedules or exhibits hereto, unless the
context otherwise requires.
(v) The definitions set forth herein are equally applicable
both to the singular and plural forms and the feminine,
masculine and neuter forms of the terms defined.
(vi) The term including and correlative terms
shall be deemed to be followed by without limitation
whether or not followed by such words or words of like import.
(vii) The term hereof and similar terms refer
to this Agreement as a whole.
(viii) The date of any notice or request given
pursuant to this Agreement shall be determined in accordance
with Section 13.
Section 2. Demand
Registration.
2.1.
(i) If one or more Holders that own an aggregate of 51% or
more of the Registrable Securities then outstanding (the
Demanding Holders) shall at any time make a written
request to the Company, the Company shall cause there to be
filed with the Commission a registration statement meeting the
requirements of the Securities Act (a Demand
Registration), and each Demanding Holder shall be entitled
to have included therein (subject to Section 2.7) all or
such number of such Demanding Holders Registered Shares,
as the Demanding Holder shall report in writing; provided,
however, that no request may be made pursuant to this
Section 2.1 if within six (6) months prior to the date
of such request a Demand Registration Statement pursuant to this
Section 2.1 shall have been declared effective by the
Commission. Any request made pursuant to this Section 2.1
shall be addressed to the attention of the Secretary of the
Company, and shall specify the number of Registrable Securities
to be registered, the intended methods of disposition thereof
and that the request is for a Demand Registration pursuant to
this Section 2.1(i).
(ii) The Company shall be entitled to postpone for up to
one hundred twenty (120) days the filing of any Demand
Registration statement otherwise required to be prepared and
filed pursuant to this Section 2.1, if the Board
determines, in its good faith reasonable judgment (with the
concurrence of the managing underwriter, if any), that such
registration and the Transfer or Registrable Securities
contemplated thereby would materially interfere with, or require
premature disclosure of, any financing, acquisition or
reorganization involving the Company or any of its wholly owned
subsidiaries and the Company promptly gives the Demanding
Holders notice of such determination; provided, however, that
the Company shall not have postponed pursuant to this
Section 2.1(ii) the filing of any other Demand Registration
statement otherwise required to be prepared and filed pursuant
to this Section 2.1 during the 24 month period ended
on the date of the relevant request pursuant to
Section 2.1(i).
A-51
(iii) Whenever the Company shall have received a demand
pursuant to Section 2.1(i) to effect the registration of
any Registrable Shares, the Company shall promptly give written
notice of such proposed registration to all Holders. Any such
Holder may, within twenty (20) days after receipt of such
notice, request in writing that all of such Holders
Registrable Shares, or any portion thereof designated by such
Holder, be included in the registration.
2.2. On or after the date of this Agreement each
Substantial Holder that shall make a written request to the
Company (the Initiating Substantial Holder), shall
be entitled to have all or any number of such Initiating
Substantial Holders Registrable Securities included in a
registration with the Commission in accordance with the
Securities Act for an offering on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act (a
Shelf Registration). Any request made pursuant to
this Section 2.2 shall be addressed to the attention of the
Secretary of the Company, and shall specify the number of
Registrable Securities to be registered, the intended methods of
disposition thereof and that the request is for a Shelf
Registration pursuant to this Section 2.2.
2.3. Following receipt of a request for a Demand
Registration or a Shelf Registration, the Company shall:
(i) File the registration statement with the Commission as
promptly as practicable, and shall use the Companys best
efforts to have the registration declared effective under the
Securities Act as soon as reasonably practicable, in each
instance giving due regard to the need to prepare current
financial statements, conduct due diligence and complete other
actions that are reasonably necessary to effect a registered
public offering.
(ii) Use the Companys best efforts to keep the
relevant registration statement Continuously Effective
(x) if a Demand Registration, for up to two hundred seventy
(270) days or until such earlier date as of which all the
Registrable Securities under the Demand Registration statement
shall have been disposed of in the manner described in the
Registration Statement, and (y) if a Shelf Registration,
for three years. Notwithstanding the foregoing, if for any
reason the effectiveness of a registration pursuant to this
Section 2 is suspended or, in the case of a Demand
Registration, postponed as permitted by Section 2.1(ii),
the foregoing period shall be extended by the aggregate number
of days of such suspension or postponement.
2.4. The Company shall be obligated to effect no more
than three Demand Registrations and such number of Shelf
Registrations as may be necessary to provide each and every
Substantial Holder with the right to request one Shelf
Registration. For purposes of the preceding sentence,
registration shall not be deemed to have been effected
(i) unless a registration statement with respect thereto
has become effective, (ii) if after such registration
statement has become effective, such registration or the related
offer, sale or distribution of Registrable Securities thereunder
is interfered with by any stop order, injunction or other order
or requirement of the Commission or other governmental agency or
court for any reason not attributable to the Selling Holders and
such interference is not thereafter eliminated, or (iii) if
the conditions to closing specified in the underwriting
agreement, if any, entered into in connection with such
registration are not satisfied or waived, other than by reason
of a failure on the part of the Selling Holders. If the Company
shall have complied with its obligations under this Agreement, a
right to demand a registration pursuant to this Section 2
shall be deemed to have been satisfied (i) if a Demand
Registration, upon the earlier of (x) the date as of which
all of the Registrable Securities included therein shall have
been disposed of pursuant to the Registration Statement, and
(y) the date as of which such Demand Registration shall
have been Continuously Effective for a period of two hundred
seventy (270) days, and (ii) if a Shelf Registration,
upon the effective date of a Shelf Registration, provided no
stop order or similar order, or proceedings for such an order,
is thereafter entered or initiated.
2.5. A registration pursuant to this Section 2
shall be on
Form S-3
and permit the disposition of the Registrable Securities in
accordance with the intended method or methods of disposition
specified in the request pursuant to Section 2.1(i) or
Section 2.2, respectively. The Company agrees to file all
reports required to be filed by the Company with the Commission
in a timely manner so as to remain eligible or become eligible,
as the case may be, and thereafter to maintain its eligibility,
for the use of
Form S-3.
If the Company is not eligible at any time after the date hereof
to use
Form S-3,
in order to fulfill its obligations under Section 2(i) the
Company shall file a Registration Statement on
Form S-1
or other appropriate form and not later than five
(5) business days after the Company first meets the
registration eligibility and transaction requirements for the
use of
Form S-3
for registration of the offer and sale by the Investors, the
Company shall file a Registration Statement on
Form S-3
with respect to the Registrable Securities covered by the
Registration Statement on
Form S-1
or other form filed pursuant to
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Section 2(i) (and include in such Registration Statement on
Form S-3
the information required by Rule 429 under the Securities
Act) or convert the Registration Statement on
Form S-1
or other form, whichever is applicable, filed pursuant to
Section 2(i) to a
Form S-3
pursuant to Rule 429 under the Securities Act and cause
such Registration Statement (or such amendment) to be declared
effective no later than ninety (90) days after the date of
filing of such Registration Statement (or amendment).
Notwithstanding the foregoing, the Company shall use its
commercially reasonable efforts to meet the requirements of
Form S-3
for so long as any Registrable Securities remain outstanding and
under no circumstances shall the Company be obligated to file a
Registration State on any form other than
Form S-3
to fulfill ist obligations under Section 2.2.
2.6. If any registration pursuant to Section 2
involves an underwritten offering (whether on a
firm, best efforts or all
reasonable efforts basis or otherwise), or an agented
offering, the Majority Selling Holders, or the Initiating
Substantial Holder, as the case may be, shall have the right to
select the underwriter or underwriters and manager or managers
to administer such underwritten offering or the placement agent
or agents for such agented offering; provided, however, that
each Person so selected shall be reasonably acceptable to the
Company.
2.7. Whenever the Company shall effect a registration
pursuant to this Section 2 in connection with an
underwritten offering by one or more Selling Holders of
Registrable Securities: (i) if such Selling Holders have
requested the inclusion therein of more than one class of
Registrable Securities, and the Underwriters
Representative or Agent advises each such Selling Holder in
writing that, in its opinion, the inclusion of more than one
class of Registrable Securities would adversely affect such
offering, the Demanding Holders holding at least a majority of
the Registrable Securities proposed to be sold therein by them,
shall decide which class of Registrable Securities shall be
included therein in such offering and the related registration,
and the other class shall be excluded; and (ii) if the
Underwriters Representative or Agent advises each such
Selling Holder in writing that, in its opinion, the amount of
securities requested to be included in such offering (whether by
Selling Holders or others) exceeds the amount which can be sold
in such offering within a price range acceptable to the Majority
Selling Holders, securities shall be included in such offering
and the related registration, to the extent of the amount which
can be sold within such price range, and on a pro rata basis
among all Selling Holders.
Section 3. Piggyback
Registration.
3.1. If at any time the Company proposes to register
(including for this purpose a registration effected by the
Company for shareholders of the Company other than the Holders)
securities under the Securities Act in connection with the
public offering solely for cash on
Form S-1,
S-2 or
S-3 (or any
replacement or successor forms), the Company shall promptly give
each Holder of Registrable Securities written notice of such
registration (a Piggyback Registration). Upon the
written request of each Holder given within twenty
(20) days following the date of such notice, the Company
shall cause to be included in such registration statement and
use its best efforts to be registered under the Securities Act
all the Registrable Securities that each such Holder shall have
requested to be registered. The Company shall have the absolute
right to withdraw or cease to prepare or file any registration
statement for any offering referred to in this Section 3
without any obligation or liability to any Holder.
3.2. If the Underwriters Representative or
Agent shall advise the Company in writing (with a copy to each
Selling Holder) that, in its opinion, the amount of Registrable
Securities requested to be included in such registration would
materially adversely affect such offering, or the timing
thereof, then the Company will include in such registration, to
the extent of the amount and class which the Company is so
advised can be sold without such material adverse effect in such
offering: First, all securities proposed to be sold by the
Company for its own account; second, the Registrable Securities
requested to be included in such registration by Holders
pursuant to this Section 3, and all other securities being
registered pursuant to the exercise of contractual rights
comparable to the rights granted in this Section 3, pro
rata based on the estimated gross proceeds from the sale
thereof; and third all other securities requested to be included
in such registration.
3.3. Except as set forth in Section 3.2, each
Holder shall be entitled to have its Registrable Securities
included in an unlimited number of Piggyback Registrations
pursuant to this Section 3.
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Section 4. Registration
Procedures. Whenever required under
Section 2 or Section 3 to effect the registration of
any Registrable Securities, the Company shall, as expeditiously
as practicable:
4.1. Prepare and file with the Commission a
registration statement with respect to such Registrable
Securities and use the Companys best efforts to cause such
registration statement to become effective; provided, however,
that before filing a registration statement or prospectus or any
amendments or supplements thereto, including documents
incorporated by reference after the initial filing of the
registration statement and prior to effectiveness thereof, the
Company shall furnish to one firm of counsel for the Selling
Holders (selected by Majority Selling Holders or the Initiating
Substantial Holder, as the case may be) copies of all such
documents in the form substantially as proposed to be filed with
the Commission at least four (4) business days prior to
filing for review and comment by such counsel.
4.2. Prepare and file with the Commission such
amendments and supplements to such registration statement and
the prospectus used in connection with such registration
statement as may be necessary to comply with the provisions of
the Securities Act and rules thereunder with respect to the
disposition of all securities covered by such registration
statement. If the registration is for an underwritten offering,
the Company shall amend the registration statement or supplement
the prospectus whenever required by the terms of the
underwriting agreement entered into pursuant to
Section 5.2. Subject to Rule 415 under the Securities
Act, if the registration statement is a Shelf Registration, the
Company shall amend the registration statement or supplement the
prospectus so that it will remain current and in compliance with
the requirements of the Securities Act for three years after its
effective date, and if during such period any event or
development occurs as a result of which the registration
statement or prospectus contains a misstatement of a material
fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading, the Company shall promptly notify each Selling
Holder, amend the registration statement or supplement the
prospectus so that each will thereafter comply with the
Securities Act and furnish to each Selling Holder of Registrable
Shares such amended or supplemented prospectus, which each such
Holder shall thereafter use in the Transfer of Registrable
Shares covered by such registration statement. Pending such
amendment or supplement each such Holder shall cease making
offers or Transfers of Registrable Shares pursuant to the prior
prospectus. In the event that any Registrable Securities
included in a registration statement subject to, or required by,
this Agreement remain unsold at the end of the period during
which the Company is obligated to use its best efforts to
maintain the effectiveness of such registration statement, the
Company may file a post-effective amendment to the registration
statement for the purpose of removing such Securities from
registered status.
4.3. Furnish to each Selling Holder of Registrable
Securities, without charge, such numbers of copies of the
registration statement, any pre-effective or post-effective
amendment thereto, the prospectus, including each preliminary
prospectus and any amendments or supplements thereto, in each
case in conformity with the requirements of the Securities Act
and the rules thereunder, and such other related documents as
any such Selling Holder may reasonably request in order to
facilitate the disposition of Registrable Securities owned by
such Selling Holder.
4.4. Use the Companys best efforts (i) to
register and qualify the securities covered by such registration
statement under such other securities or Blue Sky laws of such
states or jurisdictions as shall be reasonably requested by the
Underwriters Representative or Agent (as applicable, or if
inapplicable, the Majority Selling Holders), and (ii) to
obtain the withdrawal of any order suspending the effectiveness
of a registration statement, or the lifting of any suspension of
the qualification (or exemption from qualification) of the offer
and transfer of any of the Registrable Securities in any
jurisdiction, at the earliest possible moment; provided,
however, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such
states or jurisdictions.
4.5. In the event of any underwritten or agented
offering, enter into and perform the Companys obligations
under an underwriting or agency agreement (including
indemnification and contribution obligations of underwriters or
agents), in usual and customary form, with the managing
underwriter or underwriters of or agents for such offering. The
Company shall also cooperate with the Majority Selling Holders
or Initiating Substantial Holder, as the case may be, and the
Underwriters Representative or Agent for such offering in
the marketing of the Registrable Shares, including making
available the Companys officers,
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accountants, counsel, premises, books and records for such
purpose, but the Company shall not be required to incur any
material
out-of-pocket
expense pursuant to this sentence.
4.6. Promptly notify each Selling Holder of any stop
order issued or threatened to be issued by the Commission in
connection therewith (and take all reasonable actions required
to prevent the entry of such stop order or to remove it if
entered.
4.7. Make generally available to the Companys
security holders copies of all periodic reports, proxy
statements, and other information referred to in
Section 10.1 and an earnings statement satisfying the
provisions of Section 11(a) of the Securities Act no later
than ninety (90) days following the end of the
12-month
period beginning with the first month of the Companys
first fiscal quarter commencing after the effective date of each
registration statement filed pursuant to this Agreement.
4.8. Make available for inspection by any Selling
Holder, any underwriter participating in such offering and the
representatives of such Selling Holder and Underwriter (but not
more than one firm of counsel to such Selling Holders), all
financial and other information as shall be reasonably requested
by them, and provide the Selling Holder, any underwriter
participating in such offering and the representatives of such
Selling Holder and Underwriter the opportunity to discuss the
business affairs of the Company with its principal executives
and independent public accountants who have certified the
audited financial statements included in such registration
statement, in each case all as necessary to enable them to
exercise their due diligence responsibility under the Securities
Act; provided, however, that information that the Company
determines, in good faith, to be confidential and which the
Company advises such Person in writing, is confidential shall
not be disclosed unless such Person signs a confidentiality
agreement reasonably satisfactory to the Company or the related
Selling Holder of Registrable Securities agrees to be
responsible for such Persons breach of confidentiality on
terms reasonably satisfactory to the Company.
4.9. Use the Companys best efforts to obtain a
so-called comfort letter from its independent public
accountants, and legal opinions of counsel to the Company
addressed to the Selling Holders, in customary form and covering
such matters of the type customarily covered by such letters,
and in a form that shall be reasonably satisfactory to Majority
Selling Holders or the Initiating Substantial Holder, as the
case be. The Company shall furnish to each Selling Holder a
signed counterpart of any such comfort letter or legal opinion.
Delivery of any such opinion or comfort letter shall be subject
to the recipient furnishing such written representations or
acknowledgements as are customarily provided by selling
shareholders who receive such comfort letters or opinions.
4.10. Provide and cause to be maintained a transfer
agent and registrar for all Registrable Securities covered by
such registration statement from and after a date not later than
the effective date of such registration statement.
4.11. Use all reasonable efforts to cause the
Registrable Securities covered by such registration statement
(i) if the Common Stock is then listed on a securities
exchange or included for quotation in a recognized trading
market, to continue to be so listed or included for a reasonable
period of time after the offering, and (ii) to be
registered with or approved by such other United States or state
governmental agencies or authorities as may be necessary by
virtue of the business and operations of the Company to enable
the Selling Holders of Registrable Securities to consummate the
disposition of such Registrable Securities.
4.12. Use the Companys reasonable efforts to
provide a CUSIP number for the Registrable Securities prior to
the effective date of the first registration statement including
Registrable Securities.
4.13. Take such other actions as are reasonably
requested in order to expedite or facilitate the disposition of
Registrable Securities included in each such registration.
Section 5. Holders
Obligations. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to
this Agreement with respect to the Registrable Securities of any
Selling Holder of Registrable Securities that such Selling
Holder shall:
5.1. Furnish to the Company such information
regarding such Selling Holder, the number of the Registrable
Securities owned by it, and the intended method of disposition
of such securities as shall be required to effect the
registration of such Selling Holders Registrable
Securities, and to cooperate with the Company in preparing such
registration;
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5.2. Agree to sell their Registrable Securities to
the underwriters at the same price and on substantially the same
terms and conditions as the Company or the other Persons on
whose behalf the registration statement was being filed have
agreed to sell their securities, and to execute the underwriting
agreement agreed to by the Majority Selling Holders (in the case
of a registration under Section 2) or the Company and
the Majority Selling Holders (in the case of a registration
under Section 3).
Section 6. Expenses
of Registration. Expenses in connection with
registrations pursuant to this Agreement shall be allocated and
paid as follows:
6.1. With respect to each Demand Registration and
Shelf Registration, the Company shall bear and pay all expenses
incurred in connection with any registration, filing, or
qualification of Registrable Securities with respect to such
Demand Registrations for each Selling Holder (which right may be
assigned to any Person to whom Registrable Securities are
Transferred as permitted by Section 9), including all
registration, filing and National Association of Securities
Dealers, Inc. fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating
and printing expenses, messenger and delivery expenses, the
reasonable fees and disbursements of counsel for the Company,
and of the Companys independent public accountants,
including the expenses of cold comfort letters
required by or incident to such performance and compliance, and
the reasonable fees and disbursements of one firm of counsel for
the Selling Holders of Registrable Securities (selected by
Demanding Holders owning a majority of the Registrable
Securities owned by Demanding Holders to be included in a Demand
Registration or by the Initiating Substantial Holder, as the
case may be) (the Registration Expenses), but
excluding underwriting discounts and commissions relating to
Registrable Securities (which shall be paid on a pro rata basis
by the Selling Holders), provided, however, that the Company
shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 2 if the
registration is subsequently withdrawn at the request of the
Majority Selling Holders (in which case all Selling Holders
shall bear such expense), unless Holders whose Registrable
Securities constitute a majority of the Registrable Securities
then outstanding agree that such withdrawn registration shall
constitute one of the demand registrations under Section 2
hereof.
6.2. The Company shall bear and pay all Registration
Expenses incurred in connection with any Piggyback Registrations
pursuant to Section 3 for each Selling Holder (which right
may be Transferred to any Person to whom Registrable Securities
are Transferred as permitted by Section 9), but excluding
underwriting discounts and commissions relating to Registrable
Securities (which shall be paid on a pro rata basis by the
Selling Holders of Registrable Securities).
6.3. Any failure of the Company to pay any
Registration Expenses as required by this Section 6 shall
not relieve the Company of its obligations under this Agreement.
Section 7. Indemnification;
Contribution. If any Registrable Securities are
included in a registration statement under this Agreement:
7.1. To the extent permitted by applicable law, the
Company shall indemnify and hold harmless each Selling Holder,
each Person, if any, who controls such Selling Holder within the
meaning of the Securities Act, and each officer, director,
partner, and employee of such Selling Holder and such
controlling Person, against any and all losses, claims, damages,
liabilities and expenses (joint or several), including
attorneys fees and disbursements and expenses of
investigation, incurred by such party pursuant to any actual or
threatened action, suit, proceeding or investigation, or to
which any of the foregoing Persons may become subject under the
Securities Act, the Exchange Act or other federal or state laws,
insofar as such losses, claims, damages, liabilities and
expenses arise out of or are based upon any of the following
statements, omissions or violations (collectively a
Violation):
(i) Any untrue statement or alleged untrue statement of a
material fact contained in such registration statement,
including any preliminary prospectus or final prospectus
contained therein, or any amendments or supplements
thereto; or
(ii) The omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to
make the statements therein not misleading;
provided, however, that the indemnification required by this
Section 7.1 shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or expense if such
settlement is effected without the
A-56
consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for
any such loss, claim, damage, liability or expense to the extent
that it arises out of or is based upon a Violation which occurs
in reliance upon and in conformity with written information
furnished to the Company by the indemnified party expressly for
use in connection with such registration; provided, further,
that the indemnity agreement contained in this Section 7
shall not apply to any underwriter to the extent that any such
loss is based on or arises out of an untrue statement or alleged
untrue statement of a material fact, or an omission or alleged
omission to state a material fact, contained in or omitted from
any preliminary prospectus if the final prospectus shall correct
such untrue statement or alleged untrue statement, or such
omission or alleged omission, and a copy of the final prospectus
has not been sent or given to such person at or prior to the
confirmation of sale to such person if such underwriter was
under an obligation to deliver such final prospectus and failed
to do so. The Company shall also indemnify underwriters, selling
brokers, dealer managers and similar securities industry
professionals participating in the distribution, their officers,
directors, agents and employees and each person who controls
such persons (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) to the
same extent as provided above with respect to the
indemnification of the Selling Holders.
7.2. To the extent permitted by applicable law, each
Selling Holder shall indemnify and hold harmless the Company,
each of its directors, each of its officers who shall have
signed the registration statement, each Person, if any, who
controls the Company within the meaning of the Securities Act,
any other Selling Holder, any controlling Person of any such
other Selling Holder and each officer, director, partner, and
employee of such other Selling Holder and such controlling
Person, against any and all losses, claims, damages, liabilities
and expenses (joint and several), including attorneys fees
and disbursements and expenses of investigation, incurred by
such party pursuant to any actual or threatened action, suit,
proceeding or investigation, or to which any of the foregoing
Persons may otherwise become subject under the Securities Act,
the Exchange Act or other federal or state laws, insofar as such
losses, claims, damages, liabilities and expenses arise out of
or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such
Selling Holder expressly for use in connection with such
registration; provided, however, that (x) the
indemnification required by this Section 7.2 shall not
apply to amounts paid in settlement of any such loss, claim,
damage, liability or expense if settlement is effected without
the consent of the relevant Selling Holder of Registrable
Securities, which consent shall not be unreasonably withheld,
and (y) in no event shall the amount of any indemnity under
this Section 7.2 exceed the gross proceeds from the
applicable offering received by such Selling Holder.
7.3. Promptly after receipt by an indemnified party
under this Section 7 of notice of the commencement of any
action, suit, proceeding, investigation or threat thereof made
in writing for which such indemnified party may make a claim
under this Section 7, such indemnified party shall deliver
to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own
counsel, with the fees and disbursements and expenses to be paid
by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests
between such indemnified party and any other party represented
by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable
time following the commencement of any such action, if
prejudicial to its ability to defend such action, shall relieve
such indemnifying party of any liability to the indemnified
party under this Section 7 but shall not relieve the
indemnifying party of any liability that it may have to any
indemnified party otherwise than pursuant to this
Section 7. Any fees and expenses incurred by the
indemnified party (including any fees and expenses incurred in
connection with investigating or preparing to defend such action
or proceeding) shall be paid to the indemnified party, as
incurred, within thirty (30) days of written notice thereof
to the indemnifying party (regardless of whether it is
ultimately determined that an indemnified party is not entitled
to indemnification hereunder). Any such indemnified party shall
have the right to employ separate counsel in any such action,
claim or proceeding and to participate in the defense thereof,
but the fees and expenses of such counsel shall be the expenses
of such indemnified party unless (i) the indemnifying party
has agreed to pay such fees and expenses or (ii) the
indemnifying party shall have failed to
A-57
promptly assume the defense of such action, claim or proceeding
or (iii) the named parties to any such action, claim or
proceeding (including any impleaded parties) include both such
indemnified party and the indemnifying party, and such
indemnified party shall have been advised by counsel that there
may be one or more legal defenses available to it which are
different from or in addition to those available to the
indemnifying party and that the assertion of such defenses would
create a conflict of interest such that counsel employed by the
indemnifying party could not faithfully represent the
indemnified party (in which case, if such indemnified party
notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume
the defense of such action, claim or proceeding on behalf of
such indemnified party, it being understood, however, that the
indemnifying party shall not, in connection with any one such
action, claim or proceeding or separate but substantially
similar or related actions, claims or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (together with
appropriate local counsel) at any time for all such indemnified
parties, unless in the reasonable judgment of such indemnified
party a conflict of interest may exist between such indemnified
party and any other of such indemnified parties with respect to
such action, claim or proceeding, in which event the
indemnifying party shall be obligated to pay the fees and
expenses of such additional counsel or counsels). No
indemnifying party shall be liable to an indemnified party for
any settlement of any action, proceeding or claim without the
written consent of the indemnifying party, which consent shall
not be unreasonably withheld.
7.4. If the indemnification required by this
Section 7 from the indemnifying party is unavailable to an
indemnified party hereunder in respect of any losses, claims,
damages, liabilities or expenses referred to in this
Section 7:
(i) The indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as
is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to,
among other things, whether any Violation has been committed by,
or relates to information supplied by, such indemnifying party
or indemnified parties, and the parties relative intent,
knowledge, access to information and opportunity to correct or
prevent such Violation. The amount paid or payable by a party as
a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include, subject
to the limitations set forth in Section 7.1 and
Section 7.2, any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or
proceeding.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7.4 were
determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable
considerations referred to in Section 7.4(i). No Person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such
fraudulent misrepresentation.
7.5. If indemnification is available under this
Section 7, the indemnifying parties shall indemnify each
indemnified party to the full extent provided in this
Section 7 without regard to the relative fault of such
indemnifying party or indemnified party or any other equitable
consideration referred to in Section 7.4.
7.6. The obligations of the Company and the Selling
Holders of Registrable Securities under this Section 7
shall survive the completion of any offering of Registrable
Securities pursuant to a registration statement under this
Agreement, and otherwise.
Section 8. Transfer
of Registration Rights. Rights with respect to
Registrable Securities may be Transferred as follows:
(i) the rights of a Substantial Holder to require a Shelf
Registration pursuant to Section 2.2 may be Transferred to
any Person in connection with the Transfer to such Person by
such Substantial Holder of a number of Registrable Securities
equal to 25% or more of the Registrable Securities outstanding
on the date of this Agreement, and (ii) all other rights of
a Holder with respect to Registrable Securities pursuant to this
Agreement may be Transferred by such Holder to any of its Person
in connection with the Transfer of Registrable Securities to
such Person, in all cases, if (x) any such Transferee that
is not a party to this Agreement shall have executed and
delivered
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to the Secretary of the Company a properly completed agreement
substantially in the form of Exhibit A, and (y) the
Transferor shall have delivered to the Secretary of the Company,
no later than fifteen (15) days following the date of the
Transfer, written notification of such Transfer setting forth
the name of the Transferor, name and address of the Transferee,
and the number of Registrable Securities which shall have been
so Transferred.
Section 9. Holdback. Each
Holder entitled pursuant to this Agreement to have Registrable
Securities included in a registration statement prepared
pursuant to this Agreement, if so requested by the
Underwriters Representative or Agent in connection with an
offering of any Registrable Securities, shall not effect any
public sale or distribution of shares of Common Stock or any
securities convertible into or exchangeable or exercisable for
shares of Common Stock, including a sale pursuant to
Rule 144 under the Securities Act (except as part of such
underwritten or agented registration), during the fifteen
(15) day period prior to, and during the ninety
(90) day period beginning on, the date such registration
statement is declared effective under the Securities Act by the
Commission, provided that such Holder is timely notified of such
effective date in writing by the Company or such
Underwriters Representative or Agent. In order to enforce
the foregoing covenant, the Company shall be entitled to impose
stop-transfer instructions with respect to the Registrable
Securities of each Holder until the end of such period.
Section 10. Covenants
of the Company. The Company hereby agrees and
covenants as follows:
10.1. The Company shall file as and when applicable,
on a timely basis, all reports required to be filed by it under
the Exchange Act. If the Company is not required to file reports
pursuant to the Exchange Act, upon the request of any Holder of
Registrable Securities, the Company shall make publicly
available the information specified in subparagraph (c)(2)
of Rule 144 of the Securities Act, and take such further
action as may be reasonably required from time to time and as
may be within the reasonable control of the Company, to enable
the Holders to Transfer Registrable Securities without
registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 under the Securities
Act or any similar rule or regulation hereafter adopted by the
Commission.
10.2.
(i) The Company shall not, and shall permit its majority
owned subsidiaries to, effect any public sale or distribution of
any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for shares of Common Stock, during
the five (5) business days prior to, and during the ninety
(90) day period beginning on, the commencement of a public
distribution of the Registrable Securities pursuant to any
registration statement prepared pursuant to this Agreement
(other than by the Company pursuant to such registration if the
registration is on
Form S-4,
Form S-8
or any successor forms to such forms or pursuant to
Section 3 or such other registration rights agreements as
may be approved in writing by the Majority Selling Holders or
the Initiating Substantial Holder, as the case may be).
(ii) Any agreement entered into after the date of this
Agreement pursuant to which the Company or any of its majority
owned subsidiaries issues or agrees to issue any privately
placed securities similar to any issue of the Registrable
Securities (other than (x) shares of Common Stock pursuant
to a stock incentive, stock option, stock bonus, stock purchase
or other employee benefit plan of the Company approved by its
Board of Directors, and (y) securities issued to Persons in
exchange for ownership interests in any Person in connection
with a business combination in which the Company or any of its
majority owned subsidiaries is a party) shall contain a
provision whereby holders of such securities agree not to effect
any public sale or distribution of any such securities during
the periods described in the first sentence of
Section 10.2(i), in each case including a sale pursuant to
Rule 144 under the Securities Act (unless such Person is
prevented by applicable statute or regulation from entering into
such an agreement).
10.3. The Company shall not grant to any Person
(other than a Holder of Registrable Securities) any registration
rights with respect to securities of the Company, or enter into
any agreement, that would entitle the holder thereof to have
securities owned by it included in a Demand Registration or
Shelf Registration.
Section 11. Amendment,
Modification and Waivers; Further Assurances.
(i) This Agreement may be amended with the consent of the
Company and the Company may take any action herein prohibited,
or omit to perform any act herein required to be performed by
it, only if the Company shall have
A-59
obtained the written consent of Holders owning Registrable
Securities possessing a majority in number of the Registrable
Securities then outstanding to such amendment, action or
omission to act.
(ii) No waiver of any terms or conditions of this Agreement
shall operate as a waiver of any other breach of such terms and
conditions or any other term or condition, nor shall any failure
to enforce any provision hereof operate as a waiver of such
provision or of any other provision hereof. No written waiver
hereunder, unless it by its own terms explicitly provides to the
contrary, shall be construed to effect a continuing waiver of
the provisions being waived and no such waiver in any instance
shall constitute a waiver in any other instance or for any other
purpose or impair the right of the party against whom such
waiver is claimed in all other instances or for all other
purposes to require full compliance with such provision.
(iii) Each of the parties hereto shall execute all such
further instruments and documents and take all such further
action as any other party hereto may reasonably require in order
to effectuate the terms and purposes of this Agreement.
Section 12. Assignment;
Benefit. This Agreement and all of the provisions
hereof shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, assigns,
executors, administrators or successors; provided, however, that
except as specifically provided herein with respect to certain
matters, neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned or delegated by the
Company without the prior written consent of Holders owning
Registrable Securities possessing a majority in number of the
Registrable Securities outstanding on the date as of which such
delegation or assignment is to become effective. A Holder may
Transfer its rights hereunder to a successor in interest to the
Registrable Securities owned by such assignor only as permitted
by Section 8.
Section 13. Miscellaneous.
13.1. Governing Law. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK, WITHOUT GIVING REGARD TO THE CONFLICT
OF LAWS PRINCIPLES THEREOF.
13.2. Notices. All notices and
requests given pursuant to this Agreement shall be in writing
and shall be made by hand-delivery, first-class mail (registered
or certified, return receipt requested), confirmed facsimile or
overnight air courier guaranteeing next business day delivery to
the relevant address specified on Schedule 1 to this
Agreement or in the relevant agreement in the form of
Exhibit A whereby such party became bound by the provisions
of this Agreement. Except as otherwise provided in this
Agreement, the date of each such notice and request shall be
deemed to be, and the date on which each such notice and request
shall be deemed given shall be: at the time delivered, if
personally delivered or mailed; when receipt is acknowledged, if
sent by facsimile; and the next business day after timely
delivery to the courier, if sent by overnight air courier
guaranteeing next business day delivery.
13.3. Entire Agreement;
Integration. This Agreement supersedes all prior
agreements between or among any of the parties hereto with
respect to the subject matter contained herein and therein, and
such agreements embody the entire understanding among the
parties relating to such subject matter.
13.4. Injunctive Relief. Each of
the parties hereto acknowledges that in the event of a breach by
any of them of any material provision of this Agreement, the
aggrieved party may be without an adequate remedy at law. Each
of the parties therefore agrees that in the event of such a
breach hereof the aggrieved party may elect to institute and
prosecute proceedings in any court of competent jurisdiction to
enforce specific performance or to enjoin the continuing breach
hereof. By seeking or obtaining any such relief, the aggrieved
party shall not be precluded from seeking or obtaining any other
relief to which it may be entitled.
13.5. Section Headings. Section
headings are for convenience of reference only and shall not
affect the meaning of any provision of this Agreement.
13.6. Counterparts. This Agreement
may be executed in any number of counterparts, each of which
shall be an original, and all of which shall together constitute
one and the same instrument. All signatures need not be on the
same counterpart.
13.7. Severability. If any
provision of this Agreement shall be invalid or unenforceable,
such invalidity or unenforceability shall not affect the
validity and enforceability of the remaining provisions of this
Agreement,
A-60
unless the result thereof would be unreasonable, in which case
the parties hereto shall negotiate in good faith as to
appropriate amendments hereto.
13.8. Filing. A copy of this
Agreement and of all amendments thereto shall be filed at the
principal executive office of the Company with the corporate
recorder of the Company.
13.9. Termination. This Agreement
may be terminated at any time by a written instrument signed by
the parties hereto. Unless sooner terminated in accordance with
the preceding sentence, this Agreement (other than
Section 7 hereof) shall terminate in its entirety on such
date as there shall be no Registrable Securities outstanding,
provided that any shares of Common Stock previously subject to
this Agreement shall not be Registrable Securities following the
sale of any such shares in an offering registered pursuant to
this Agreement.
13.10. Attorneys Fees. In any
action or proceeding brought to enforce any provision of this
Agreement, or where any provision hereof is validly asserted as
a defense, the successful party shall be entitled to recover
reasonable attorneys fees (including any fees incurred in
any appeal) in addition to its costs and expenses and any other
available remedy.
13.11. No Third Party
Beneficiaries. Nothing herein expressed or
implied is intended to confer upon any person, other than the
parties hereto or their respective permitted assigns,
successors, heirs and legal representatives, any rights,
remedies, obligations or liabilities under or by reason of this
Agreement.
A-61
IN WITNESS WHEREOF, this Agreement has been duly executed
by the parties hereto as of the date first written above.
The Company:
Name:
The Principal Investor:
MATLINPATTERSION FA ACQUISITION LLC
Name:
The Other Investors:
[insert signature blocks for any Co-Investors]
** Insert
new name of the Company
A-62
EXHIBIT A
to
Registration
Rights Agreement
AGREEMENT TO BE BOUND
BY THE REGISTRATION RIGHTS AGREEMENT
The undersigned, being the transferee
of shares
of the common stock, $.01 par value per share [or describe
other capital stock received in exchange for such common stock]
(the Registrable Securities), of
[ ]6,
a New York corporation (the Company), as a condition
to the receipt of such Registrable Securities, acknowledges that
matters pertaining to the registration of such Registrable
Securities is governed by the Registration Rights Agreement
dated as of
[ ]7,
2007 initially among the Company and the Holders referred to
therein (the Agreement), and the undersigned hereby
(1) acknowledges receipt of a copy of the Agreement, and
(2) agrees to be bound as a Holder by the terms of the
Agreement, as the same has been or may be amended from time to
time.
Agreed to
this
day
of , .
*
*
* Include
address for notices.
6 Insert
new name of the Company.
7 Insert
Closing Date
A-63
SCHEDULE 1
to
Registration Rights Agreement
Address for Notices:
1. The Company.
First Albany Companies Inc.
677 Broadway
Albany, NY 12207
Attention: General Counsel
Facsimile:
(518) 447-8606
2. The Principal Investor.
MatlinPatterson FA Acquisition LLC
c/o MatlinPatterson
Global Advisers LLC
520 Madison Avenue,
35th Floor
New York, New York 10022
Attention: General Counsel
Fax:
(212) 651-4011
[add notice addresses for any Other Investors]
A-64
[EXECUTION
COPY]
VOTING
AGREEMENT
THIS VOTING AGREEMENT (Agreement), dated as of
May 14, 2007, is made by and among MATLINPATTERSON FA
ACQUISITION LLC, a Delaware limited liability company (the
Investor), and ALAN P. GOLDBERG (the
Shareholder), an individual and a shareholder of
First Albany Companies Inc., a New York corporation (the
Company).
PRELIMINARY
STATEMENTS
WHEREAS, the Company and Investor are entering into an
Investment Agreement (the Investment Agreement),
dated as of May 14, 2007, providing for the issuance and
sale by the Company to the Purchasers (as defined therein), and
the purchase by the Purchasers from the Company, of certain
shares (the Purchased Shares) of the common stock,
par value $.01 per share, of the Company (Common
Stock) that upon issuance will represent a majority of the
outstanding Common Stock (such purchase, being sometimes
hereinafter referred to as the Investment) upon the
terms and subject to the conditions set forth in the Investment
Agreement (as defined in the Investment Agreement).
WHEREAS, the Investment, the Charter Amendment (as defined in
the Investment Agreement) and certain other aspects of the
Transactions (as defined in the Investment Agreement)
(collectively, the Shareholders Approvals, as more
fully defined in the Investment Agreement) are subject to the
approval of the holders of the Common Stock as provided in the
Investment Agreement and as required under the New York Business
Corporation Law (the NYBCL) and NASDAQ rules.
WHEREAS, the Shareholder beneficially owns and has the power to
direct the voting of the shares of Common Stock set forth
opposite his name on Exhibit A hereto. As used herein, the
term Shares includes all shares of such Common Stock
of which the Shareholder at any time prior to the termination of
this Agreement is the beneficial owner or is otherwise able to
direct the voting thereof (including any such shares of Common
Stock acquired after the date hereof upon the exercise of any
stock options, warrants or similar instruments or otherwise) and
all securities issued or exchanged with respect to any such
Shares upon any reclassification, recapitalization,
reorganization, merger, consolidation, spin-off, stock split,
combination, stock or other dividend or any other change in the
Companys capital structure.
WHEREAS, to induce Investor to enter into the Investment
Agreement and to consummate the Investment, the Shareholder has
agreed, upon the terms and subject to the conditions set forth
herein, in his capacity as a Shareholder of the Company, to vote
his Shares in favor of each of the Shareholder Approvals.
NOW, THEREFORE, for good and valuable consideration, the
receipt, sufficiency and adequacy of which are hereby
acknowledged, the parties to this Agreement agree as follows:
1. Shareholders Representations and Warranties.
(a) The Shareholder represents and warrants to the Investor
that the Shareholder (i) is the record (except as may be
noted on Exhibit A hereto) beneficial owner of that number
of Shares set forth opposite its name set forth on
Exhibit A hereto, free and clear of any mortgage, pledge,
lien, security interest, claim, restriction on voting or
otherwise or other encumbrance and (ii) has the right to
vote or to direct the voting of such Shares free of any
restriction or limitation.
(b) Neither the execution and delivery of this Agreement
nor the performance by the Shareholder of his obligations
hereunder will result in a violation of, or a default under, or
conflict with any contract, trust, commitment, agreement,
understanding, arrangement or restriction of any kind to which
the Shareholder is a party or by which the Shareholder is bound
or to which the Shares are subject, except, as would not
prevent, delay or otherwise materially impair the
Shareholders ability to perform his obligations hereunder.
Execution, delivery and performance of this Agreement by the
Shareholder will not violate, or require any consent, approval
or notice under, any provision of any judgment, order, decree,
statute, law, rule or regulation applicable to the Shareholder
or the
A-65
Shares, except (x) for any reports under
Sections 13(d) of the Exchange Act as may be required in
connection with this Agreement and the transactions contemplated
hereby or (y) as would not reasonably be expected to
prevent, delay or otherwise materially impair the
Shareholders ability to perform his obligations hereunder.
2. No Other Proxies or Voting
Trusts. The Shareholder hereby revokes any and
all proxies and voting instructions with respect to the Shares
previously given by Shareholder and agrees that he will not
grant or give any other proxies or voting instructions with
respect to the voting of the Shares, enter into any voting trust
or other arrangement or agreement with respect to the voting of
the Shares (and if given or executed, such proxies, voting
instructions, voting trust or other arrangement or agreement
shall not be effective), or agree, in any manner, to vote the
Shares for or against any proposal submitted to the Shareholders
of the Company except in furtherance of the proposals set forth
in paragraph 3.
3. Agreements with Respect to the Shares.
(a) The Shareholder agrees during the Term (as defined in
Section 7 below) of this Agreement:
(i) to vote the Shares (x) in favor of each of the
Shareholder Approvals at every meeting of the Shareholders of
the Company at which such matters are considered and at every
adjournment thereof, and in any other circumstances upon which a
vote, consent or other approval (including by written consent)
relating to the Investment Agreement and the Transactions
contemplated thereby or the Charter Amendment or any of the
other Shareholder Approvals is sought and (y) with respect
to all other proposals submitted to the shareholders of the
Company which, directly or indirectly, in any way relate to the
Investment or any of the other Transactions contemplated by the
Investment Agreement, in such manner as Investor may
direct; and
(ii) not to solicit, encourage or recommend to other
shareholders of the Company that (w) they vote their shares
of Common Stock in any contrary manner, (x) they refrain
from voting their shares, (y) they tender, exchange or
otherwise dispose of their shares of Common Stock pursuant to a
Competing Transaction (as hereinafter defined), or (z) they
attempt to exercise any statutory appraisal or other similar
rights they may have.
(b) Unless otherwise instructed in writing by the Investor,
during the Term of this Agreement, Shareholder will vote the
Shares against any Competing Transaction.
(c) Except with the prior written consent of the Investor,
during the Term of this Agreement, the Shareholder agrees that
the Shareholder will not, and shall use his reasonable best
efforts not to permit any employee, attorney, accountant,
investment banker or other agent or representative of the
Shareholder to, initiate, solicit, negotiate, encourage, or
provide confidential information in order to facilitate any
Competing Transaction.
(d) No person executing this Agreement (or an affiliate
thereof) who is or becomes during the Term of this Agreement a
director of the Company makes any agreement or understanding
herein in his capacity as such director. The Shareholder is
executing this Agreement solely in its capacity as the record
and beneficial owner of the Shareholders Shares.
(e) For purposes of this Agreement, a Competing
Transaction means any of the following (other than the
transactions expressly provided for in and to be effected
pursuant to this Agreement): (i) any merger,
reorganization, consolidation, share exchange, business
combination, liquidation, dissolution, recapitalization or
similar transaction involving the Company; (ii) any direct
or indirect acquisition or purchase, in a single transaction or
series of related transactions, of (x) 20% or more of the
consolidated gross assets of the Company and the Subsidiaries
(as defined in the Investment Agreement), taken as a whole,
(y) 20% or more of any class of voting securities of the
Company or any Subsidiary (or any debt or equity securities
convertible into or exercisable or exchangeable for such amount
of voting securities) or (z) 15% or more of any class of
voting securities of the Company or any Subsidiary (or any debt
or equity securities convertible into or exercisable or
exchangeable for such amount of voting securities) if such
securities carry the right, contractually or otherwise, to
appoint or designate any member or members of the Board; or
(iii) any tender offer or exchange offer that, if
consummated, would result in any Person or group
(within the meaning of Section 13(d)(3) of the Exchange
Act) beneficially owning 20% or more of any class of voting
securities of the Company.
A-66
4. Proxies. In furtherance of the
foregoing, the Shareholder is granting to Christopher Pechock
and Frank Plimpton, representatives of the Investor, and each of
them, with full power of substitution, irrevocable proxies and
powers of attorney (which may be in the form annexed hereto or
such other form consistent with the terms hereof and thereof as
Investor may specify) on the matters described in
paragraph 3, and to execute and deliver any written
consents to fulfill such Shareholders obligations under
this Agreement. This proxy is coupled with an interest and is
irrevocable until the end of the Term of this Agreement, at
which time it shall terminate.
5. Effect of Stock Splits, Stock Dividends,
Recapitalizations, Etc.. In the event of any
stock split, stock dividend, merger, reorganization,
recapitalization or other change in the capital structure of the
Company affecting the Shares or the acquisition of shares of
Common Stock or other voting securities of the Company by the
Shareholder, the number of Shares listed on Exhibit A
beside the name of Shareholder shall be adjusted appropriately
and this Agreement and the obligations hereunder shall attach to
any additional Shares or other voting securities of the Company
issued to or acquired by the Shareholder.
6. Specific Performance. The
Shareholder acknowledges that it will be impossible to measure
in money the damage to Investor if the Shareholder fails to
comply with the obligations imposed by this Agreement, and that,
in the event of any such failure, Investor will not have an
adequate remedy at law or in damages. Accordingly, the
Shareholder agrees that injunctive relief or any other equitable
remedy, in addition to any remedies at law or damages, is the
appropriate remedy for any such failure and will not oppose the
granting of any such remedy on the basis that Investor has an
adequate remedy at law. The Shareholder agrees not to seek, and
agrees to waive any requirement for, the securing or posting of
a bond in connection with Investor seeking or obtaining such
equitable relief.
7. Term of Agreement; Termination.
(a) The term of this Agreement shall commence on the date
hereof and shall terminate upon the earlier to occur of
(i) the Closing (as defined in the Investment Agreement),
(ii) the due and proper termination of the Investment
Agreement in accordance with its terms, or (iii) the mutual
consent of the Investor and the Shareholder (such period from
the date hereof until such termination is referred to herein as
the Term). Upon such termination, no party shall
have any further obligations or liabilities hereunder.
(b) The obligations of the Shareholder set forth in this
Agreement shall not be effective or binding upon the Shareholder
until after such time as the Investment Agreement is executed
and delivered by the Investor and the Company.
8. Miscellaneous.
(a) Entire Agreement. This Agreement
constitutes the entire agreement among the parties with respect
to the subject matter of this Agreement and supersedes all prior
written and oral and all contemporaneous oral agreements and
understandings with respect to the subject matter of this
Agreement.
(b) Notices. Any notice, request,
instruction or other document to be given hereunder by any party
to the others shall be in writing and shall be deemed to have
been duly given on the next business day after the same is sent,
if delivered personally or sent by telecopy or overnight
delivery, or five calendar days after the same is sent, if sent
by registered or certified mail, return receipt requested,
postage prepaid, as set forth below, or to such other persons or
addresses as may be designated in writing in accordance with the
terms hereof by the party to receive such notice.
If to the Investor, to:
MatlinPatterson FA Acquisition LLC
c/o MatlinPatterson
Global Advisers LLC
520 Madison Avenue,
35th
Floor
New York, New York 10022
Attention: General Counsel
Fax:
(212) 651-4011
A-67
with a copy by fax or messenger or courier to:
Sidley Austin LLP
787 Seventh Avenue
New York, New York 10019
Facsimile:
(212) 839-5599
Attention: Duncan N. Darrow and Michael H. Yanowitch
If to Shareholder, to the address set forth below
Shareholders name on Exhibit A.
(c) Governing Law. This Agreement shall
be governed by and construed in accordance with the laws of the
State of New York as applied to contracts made and fully
performed in such state without giving effect to the principles
of conflict of laws thereof. Each party to this Agreement
(Party) submits to the jurisdiction of any state or
federal court sitting in the County of New York in any dispute
or action arising out of or relating to this Agreement and
agrees that all claims in respect of such dispute or action may
be heard and determined in any such court. Each Party also
agrees not to bring any dispute or action arising out of or
relating to this Agreement in any other court. Each Party agrees
that a final judgment in any dispute or action so brought will
be conclusive and may be enforced by action on the judgment or
in any other manner provided at law (common, statutory or other)
or in equity. Each Party waives any defense of inconvenient
forum to the maintenance of any dispute or action so brought and
waives any bond, surety, or other security that might be
required of any other Party with respect thereto.
(d) Rules of Construction. The
descriptive headings in this Agreement are inserted for
convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
Words used in this Agreement, regardless of the gender and
number specifically used, shall be deemed and construed to
include any other gender, masculine or feminine, or neuter, and
any other number, singular or plural, as the context requires.
As used in this Agreement, the word including is not
limiting, and the word or is not exclusive.
(e) Parties in Interest. This Agreement
shall be binding upon and inure solely to the benefit of the
parties to this Agreement and their legal
successors-in-interest,
and nothing in this Agreement, express or implied, is intended
to confer upon any other person any rights or remedies of any
nature whatsoever under or by reason of this Agreement.
(f) Counterparts. This Agreement may be
executed in one or more counterparts, and each of such
counterparts shall for all purposes be deemed to be an original,
but all such counterparts together shall constitute but one
instrument.
(g) Assignment. No party hereto shall
assign its rights and obligations under this Agreement or any
part thereof, nor shall any party assign or delegate any of its
rights or duties hereunder without the prior written consent of
the other party, and any assignment made without such consent
shall be void. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted
assigns.
(h) Amendment. This Agreement may not be
amended except by an instrument in writing signed on behalf of
all the parties.
(i) Extension; Waiver. Any party to this
Agreement may extend the time for the performance of any of the
obligations or other acts of any of the other parties to this
Agreement or waive compliance by any other party with any of the
agreements or conditions contained herein or any breach thereof.
Any agreement on the part of any party to any such extension or
waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
(j) Severability. If any term, provision,
covenant or restriction herein, or the application thereof to
any circumstance, shall, to any extent, be held by a court of
competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions
herein and the application thereof to any other circumstances
shall remain in full force and effect, shall not in any way be
affected, impaired or invalidated, and shall be enforced to the
fullest extent permitted by law.
A-68
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound hereby, have duly executed this Voting Agreement on the
date first above written.
THE INVESTOR:
MATLINPATTERSON FA ACQUISITION LLC
Name: ROBERT A. WEISS
THE SHAREHOLDER:
ALAN P. GOLDBERG
A-69
Exhibit A
to
Voting Agreement
Shares Subject to Voting Control; Notice Address
A. Shares
of Common Stock Subject to Shareholders Voting
Control
1,106,807 shares of Common Stock
B. Address
for Notices
ALAN P. GOLDBERG
c/o First
Albany Companies Inc.
677 Broadway
Albany, NY 12207
A-70
FORM OF
IRREVOCABLE PROXY AND POWER OF ATTORNEY
The undersigned hereby appoints Christopher Pechock and Frank
Plimpton, and each of them separately, with full power of
substitution, for and in the undersigneds name, to vote,
express consent or disapproval, or otherwise act in such manner
(including pursuant to written consent, but excluding the right
to assert, perfect and prosecute dissenters rights of
appraisal) and upon such matters as Christopher Pechock
and/or Frank
Plimpton or their respective proxies or substitutes shall, in
their sole discretion, deem proper with respect to all of the
shares of Common Stock of First Albany Companies Inc., a New
York corporation, owned beneficially or of record by the
undersigned.
The proxy granted hereby shall be irrevocable and may be
exercised at any meeting of Shareholders, notice of which is
given, or in respect of any written consent which is solicited
prior to the due and proper termination of, and subject to and
in accordance with the terms and conditions of, the Voting
Agreement, dated as of May 14, 2007, between the
undersigned and Matlinpatterson FA Acquisition LLC. This proxy
is coupled with an interest sufficient in law to support such
proxy.
ALAN P. GOLDBERG
Dated: May 14, 2007
A-71
[EXECUTION
COPY]
VOTING
AGREEMENT
THIS VOTING AGREEMENT (Agreement), dated as of
May 14, 2007, is made by and among MATLINPATTERSON FA
ACQUISITION LLC, a Delaware limited liability company (the
Investor), and GEORGE C. MCNAMEE (the
Shareholder), an individual and a shareholder of
First Albany Companies Inc., a New York corporation (the
Company).
PRELIMINARY
STATEMENTS
WHEREAS, the Company and Investor are entering into an
Investment Agreement (the Investment Agreement),
dated as of May 14, 2007, providing for the issuance and
sale by the Company to the Purchasers (as defined therein), and
the purchase by the Purchasers from the Company, of certain
shares (the Purchased Shares) of the common stock,
par value $.01 per share, of the Company (Common
Stock) that upon issuance will represent a majority of the
outstanding Common Stock (such purchase, being sometimes
hereinafter referred to as the Investment) upon the
terms and subject to the conditions set forth in the Investment
Agreement (as defined in the Investment Agreement).
WHEREAS, the Investment, the Charter Amendment (as defined in
the Investment Agreement) and certain other aspects of the
Transactions (as defined in the Investment Agreement)
(collectively, the Shareholders Approvals, as more
fully defined in the Investment Agreement) are subject to the
approval of the holders of the Common Stock as provided in the
Investment Agreement and as required under the New York Business
Corporation Law (the NYBCL) and NASDAQ rules.
WHEREAS, the Shareholder beneficially owns and has the power to
direct the voting of the shares of Common Stock set forth
opposite his name on Exhibit A hereto. As used herein, the
term Shares includes all shares of such Common Stock
of which the Shareholder at any time prior to the termination of
this Agreement is the beneficial owner or is otherwise able to
direct the voting thereof (including any such shares of Common
Stock acquired after the date hereof upon the exercise of any
stock options, warrants or similar instruments or otherwise) and
all securities issued or exchanged with respect to any such
Shares upon any reclassification, recapitalization,
reorganization, merger, consolidation, spin-off, stock split,
combination, stock or other dividend or any other change in the
Companys capital structure.
WHEREAS, to induce Investor to enter into the Investment
Agreement and to consummate the Investment, the Shareholder has
agreed, upon the terms and subject to the conditions set forth
herein, in his capacity as a Shareholder of the Company, to vote
his Shares in favor of each of the Shareholder Approvals.
NOW, THEREFORE, for good and valuable consideration, the
receipt, sufficiency and adequacy of which are hereby
acknowledged, the parties to this Agreement agree as follows:
1. Shareholders Representations and
Warranties.
(a) The Shareholder represents and warrants to the Investor
that the Shareholder (i) is the record (except as may be
noted on Exhibit A hereto) beneficial owner of that number
of Shares set forth opposite its name set forth on
Exhibit A hereto, free and clear of any mortgage, pledge,
lien, security interest, claim, restriction on voting or
otherwise or other encumbrance and (ii) has the right to
vote or to direct the voting of such Shares free of any
restriction or limitation.
(b) Neither the execution and delivery of this Agreement
nor the performance by the Shareholder of his obligations
hereunder will result in a violation of, or a default under, or
conflict with any contract, trust, commitment, agreement,
understanding, arrangement or restriction of any kind to which
the Shareholder is a party or by which the Shareholder is bound
or to which the Shares are subject, except, as would not
prevent, delay or otherwise materially impair the
Shareholders ability to perform his obligations hereunder.
Execution, delivery and performance of this Agreement by the
Shareholder will not violate, or require any consent, approval
or notice under, any provision of any judgment, order, decree,
statute, law, rule or regulation applicable to the Shareholder
or the
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Shares, except (x) for any reports under
Sections 13(d) of the Exchange Act as may be required in
connection with this Agreement and the transactions contemplated
hereby or (y) as would not reasonably be expected to
prevent, delay or otherwise materially impair the
Shareholders ability to perform his obligations hereunder.
2. No Other Proxies or Voting
Trusts. The Shareholder hereby revokes any and
all proxies and voting instructions with respect to the Shares
previously given by Shareholder and agrees that he will not
grant or give any other proxies or voting instructions with
respect to the voting of the Shares, enter into any voting trust
or other arrangement or agreement with respect to the voting of
the Shares (and if given or executed, such proxies, voting
instructions, voting trust or other arrangement or agreement
shall not be effective), or agree, in any manner, to vote the
Shares for or against any proposal submitted to the Shareholders
of the Company except in furtherance of the proposals set forth
in paragraph 3.
3. Agreements with Respect to the Shares.
(a) The Shareholder agrees during the Term (as defined in
Section 7 below) of this Agreement:
(i) to vote the Shares (x) in favor of each of the
Shareholder Approvals at every meeting of the Shareholders of
the Company at which such matters are considered and at every
adjournment thereof, and in any other circumstances upon which a
vote, consent or other approval (including by written consent)
relating to the Investment Agreement and the Transactions
contemplated thereby or the Charter Amendment or any of the
other Shareholder Approvals is sought and (y) with respect
to all other proposals submitted to the shareholders of the
Company which, directly or indirectly, in any way relate to the
Investment or any of the other Transactions contemplated by the
Investment Agreement, in such manner as Investor may
direct; and
(ii) not to solicit, encourage or recommend to other
shareholders of the Company that (w) they vote their shares
of Common Stock in any contrary manner, (x) they refrain
from voting their shares, (y) they tender, exchange or
otherwise dispose of their shares of Common Stock pursuant to a
Competing Transaction (as hereinafter defined), or (z) they
attempt to exercise any statutory appraisal or other similar
rights they may have.
(b) Unless otherwise instructed in writing by the Investor,
during the Term of this Agreement, Shareholder will vote the
Shares against any Competing Transaction.
(c) Except with the prior written consent of the Investor,
during the Term of this Agreement, the Shareholder agrees that
the Shareholder will not, and shall use his reasonable best
efforts not to permit any employee, attorney, accountant,
investment banker or other agent or representative of the
Shareholder to, initiate, solicit, negotiate, encourage, or
provide confidential information in order to facilitate any
Competing Transaction.
(d) No person executing this Agreement (or an affiliate
thereof) who is or becomes during the Term of this Agreement a
director of the Company makes any agreement or understanding
herein in his capacity as such director. The Shareholder is
executing this Agreement solely in its capacity as the record
and beneficial owner of the Shareholders Shares.
(e) For purposes of this Agreement, a Competing
Transaction means any of the following (other than the
transactions expressly provided for in and to be effected
pursuant to this Agreement): (i) any merger,
reorganization, consolidation, share exchange, business
combination, liquidation, dissolution, recapitalization or
similar transaction involving the Company; (ii) any direct
or indirect acquisition or purchase, in a single transaction or
series of related transactions, of (x) 20% or more of the
consolidated gross assets of the Company and the Subsidiaries
(as defined in the Investment Agreement), taken as a whole,
(y) 20% or more of any class of voting securities of the
Company or any Subsidiary (or any debt or equity securities
convertible into or exercisable or exchangeable for such amount
of voting securities) or (z) 15% or more of any class of
voting securities of the Company or any Subsidiary (or any debt
or equity securities convertible into or exercisable or
exchangeable for such amount of voting securities) if such
securities carry the right, contractually or otherwise, to
appoint or designate any member or members of the Board; or
(iii) any tender offer or exchange offer that, if
consummated, would result in any Person or group
(within the meaning of Section 13(d)(3) of the Exchange
Act) beneficially owning 20% or more of any class of voting
securities of the Company.
A-73
4. Proxies. In furtherance of the
foregoing, the Shareholder is granting to Christopher Pechock
and Frank Plimpton, representatives of the Investor, and each of
them, with full power of substitution, irrevocable proxies and
powers of attorney (which may be in the form annexed hereto or
such other form consistent with the terms hereof and thereof as
Investor may specify) on the matters described in
paragraph 3, and to execute and deliver any written
consents to fulfill such Shareholders obligations under
this Agreement. This proxy is coupled with an interest and is
irrevocable until the end of the Term of this Agreement, at
which time it shall terminate.
5. Effect of Stock Splits, Stock Dividends,
Recapitalizations, Etc.. In the event of any
stock split, stock dividend, merger, reorganization,
recapitalization or other change in the capital structure of the
Company affecting the Shares or the acquisition of shares of
Common Stock or other voting securities of the Company by the
Shareholder, the number of Shares listed on Exhibit A
beside the name of Shareholder shall be adjusted appropriately
and this Agreement and the obligations hereunder shall attach to
any additional Shares or other voting securities of the Company
issued to or acquired by the Shareholder.
6. Specific Performance. The
Shareholder acknowledges that it will be impossible to measure
in money the damage to Investor if the Shareholder fails to
comply with the obligations imposed by this Agreement, and that,
in the event of any such failure, Investor will not have an
adequate remedy at law or in damages. Accordingly, the
Shareholder agrees that injunctive relief or any other equitable
remedy, in addition to any remedies at law or damages, is the
appropriate remedy for any such failure and will not oppose the
granting of any such remedy on the basis that Investor has an
adequate remedy at law. The Shareholder agrees not to seek, and
agrees to waive any requirement for, the securing or posting of
a bond in connection with Investor seeking or obtaining such
equitable relief.
7. Term of Agreement; Termination.
(a) The term of this Agreement shall commence on the date
hereof and shall terminate upon the earlier to occur of
(i) the Closing (as defined in the Investment Agreement),
(ii) the due and proper termination of the Investment
Agreement in accordance with its terms, or (iii) the mutual
consent of the Investor and the Shareholder (such period from
the date hereof until such termination is referred to herein as
the Term). Upon such termination, no party shall
have any further obligations or liabilities hereunder.
(b) The obligations of the Shareholder set forth in this
Agreement shall not be effective or binding upon the Shareholder
until after such time as the Investment Agreement is executed
and delivered by the Investor and the Company.
8. Miscellaneous.
(a) Entire Agreement. This Agreement
constitutes the entire agreement among the parties with respect
to the subject matter of this Agreement and supersedes all prior
written and oral and all contemporaneous oral agreements and
understandings with respect to the subject matter of this
Agreement.
(b) Notices. Any notice, request,
instruction or other document to be given hereunder by any party
to the others shall be in writing and shall be deemed to have
been duly given on the next business day after the same is sent,
if delivered personally or sent by telecopy or overnight
delivery, or five calendar days after the same is sent, if sent
by registered or certified mail, return receipt requested,
postage prepaid, as set forth below, or to such other persons or
addresses as may be designated in writing in accordance with the
terms hereof by the party to receive such notice.
If to the Investor, to:
MatlinPatterson FA Acquisition LLC
c/o MatlinPatterson
Global Advisers LLC
520 Madison Avenue,
35th
Floor
New York, New York 10022
Attention: General Counsel
Fax:
(212) 651-4011
A-74
with a copy by fax or messenger or courier to:
Sidley Austin LLP
787 Seventh Avenue
New York, New York 10019
Facsimile:
(212) 839-5599
Attention: Duncan N. Darrow and Michael H. Yanowitch
If to Shareholder, to the address set forth below
Shareholders name on Exhibit A.
(c) Governing Law. This Agreement shall
be governed by and construed in accordance with the laws of the
State of New York as applied to contracts made and fully
performed in such state without giving effect to the principles
of conflict of laws thereof. Each party to this Agreement
(Party) submits to the jurisdiction of any state or
federal court sitting in the County of New York in any dispute
or action arising out of or relating to this Agreement and
agrees that all claims in respect of such dispute or action may
be heard and determined in any such court. Each Party also
agrees not to bring any dispute or action arising out of or
relating to this Agreement in any other court. Each Party agrees
that a final judgment in any dispute or action so brought will
be conclusive and may be enforced by action on the judgment or
in any other manner provided at law (common, statutory or other)
or in equity. Each Party waives any defense of inconvenient
forum to the maintenance of any dispute or action so brought and
waives any bond, surety, or other security that might be
required of any other Party with respect thereto.
(d) Rules of Construction. The
descriptive headings in this Agreement are inserted for
convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
Words used in this Agreement, regardless of the gender and
number specifically used, shall be deemed and construed to
include any other gender, masculine or feminine, or neuter, and
any other number, singular or plural, as the context requires.
As used in this Agreement, the word including is not
limiting, and the word or is not exclusive.
(e) Parties in Interest. This Agreement
shall be binding upon and inure solely to the benefit of the
parties to this Agreement and their legal
successors-in-interest,
and nothing in this Agreement, express or implied, is intended
to confer upon any other person any rights or remedies of any
nature whatsoever under or by reason of this Agreement.
(f) Counterparts. This Agreement may be
executed in one or more counterparts, and each of such
counterparts shall for all purposes be deemed to be an original,
but all such counterparts together shall constitute but one
instrument.
(g) Assignment. No party hereto shall
assign its rights and obligations under this Agreement or any
part thereof, nor shall any party assign or delegate any of its
rights or duties hereunder without the prior written consent of
the other party, and any assignment made without such consent
shall be void. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted
assigns.
(h) Amendment. This Agreement may not be
amended except by an instrument in writing signed on behalf of
all the parties.
(i) Extension; Waiver. Any party to this
Agreement may extend the time for the performance of any of the
obligations or other acts of any of the other parties to this
Agreement or waive compliance by any other party with any of the
agreements or conditions contained herein or any breach thereof.
Any agreement on the part of any party to any such extension or
waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
(j) Severability. If any term, provision,
covenant or restriction herein, or the application thereof to
any circumstance, shall, to any extent, be held by a court of
competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions
herein and the application thereof to any other circumstances
shall remain in full force and effect, shall not in any way be
affected, impaired or invalidated, and shall be enforced to the
fullest extent permitted by law.
A-75
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound hereby, have duly executed this Voting Agreement on the
date first above written.
THE INVESTOR:
MATLINPATTERSON FA ACQUISITION LLC
Name: ROBERT A. WEISS
THE SHAREHOLDER:
GEORGE C. MCNAMEE
A-76
Exhibit A
to
Voting Agreement
Shares Subject to Voting Control; Notice Address
A. Shares
of Common Stock Subject to Shareholders Voting
Control
1,553,367 shares of Common Stock
B. Address
for Notices
GEORGE C. MCNAMEE
c/o First
Albany Companies Inc.
677 Broadway
Albany, NY 12207
A-77
FORM OF
IRREVOCABLE PROXY AND POWER OF ATTORNEY
The undersigned hereby appoints Christopher Pechock and Frank
Plimpton, and each of them separately, with full power of
substitution, for and in the undersigneds name, to vote,
express consent or disapproval, or otherwise act in such manner
(including pursuant to written consent, but excluding the right
to assert, perfect and prosecute dissenters rights of
appraisal) and upon such matters as Christopher Pechock
and/or Frank
Plimpton or their respective proxies or substitutes shall, in
their sole discretion, deem proper with respect to all of the
shares of Common Stock of First Albany Companies Inc., a New
York corporation, owned beneficially or of record by the
undersigned.
The proxy granted hereby shall be irrevocable and may be
exercised at any meeting of Shareholders, notice of which is
given, or in respect of any written consent which is solicited
prior to the due and proper termination of, and subject to and
in accordance with the terms and conditions of, the Voting
Agreement, dated as of May 14, 2007, between the
undersigned and Matlinpatterson FA Acquisition LLC. This proxy
is coupled with an interest sufficient in law to support such
proxy.
GEORGE C. MCNAMEE
Dated: May 14, 2007
A-78
[EXECUTION
COPY]
VOTING
AGREEMENT
THIS VOTING AGREEMENT (Agreement), dated as of
May 14, 2007, is made by and among MATLINPATTERSON FA
ACQUISITION LLC, a Delaware limited liability company (the
Investor), and PETER MCNIERNEY (the
Shareholder), an individual and a shareholder of
First Albany Companies Inc., a New York corporation (the
Company).
PRELIMINARY
STATEMENTS
WHEREAS, the Company and Investor are entering into an
Investment Agreement (the Investment Agreement),
dated as of May 14, 2007, providing for the issuance and
sale by the Company to the Purchasers (as defined therein), and
the purchase by the Purchasers from the Company, of certain
shares (the Purchased Shares) of the common stock,
par value $.01 per share, of the Company (Common
Stock) that upon issuance will represent a majority of the
outstanding Common Stock (such purchase, being sometimes
hereinafter referred to as the Investment) upon the
terms and subject to the conditions set forth in the Investment
Agreement (as defined in the Investment Agreement).
WHEREAS, the Investment, the Charter Amendment (as defined in
the Investment Agreement) and certain other aspects of the
Transactions (as defined in the Investment Agreement)
(collectively, the Shareholders Approvals, as more
fully defined in the Investment Agreement) are subject to the
approval of the holders of the Common Stock as provided in the
Investment Agreement and as required under the New York Business
Corporation Law (the NYBCL) and NASDAQ rules.
WHEREAS, the Shareholder beneficially owns and has the power to
direct the voting of the shares of Common Stock set forth
opposite his name on Exhibit A hereto. As used herein, the
term Shares includes all shares of such Common Stock
of which the Shareholder at any time prior to the termination of
this Agreement is the beneficial owner or is otherwise able to
direct the voting thereof (including any such shares of Common
Stock acquired after the date hereof upon the exercise of any
stock options, warrants or similar instruments or otherwise) and
all securities issued or exchanged with respect to any such
Shares upon any reclassification, recapitalization,
reorganization, merger, consolidation, spin-off, stock split,
combination, stock or other dividend or any other change in the
Companys capital structure.
WHEREAS, to induce Investor to enter into the Investment
Agreement and to consummate the Investment, the Shareholder has
agreed, upon the terms and subject to the conditions set forth
herein, in his capacity as a Shareholder of the Company, to vote
his Shares in favor of each of the Shareholder Approvals.
NOW, THEREFORE, for good and valuable consideration, the
receipt, sufficiency and adequacy of which are hereby
acknowledged, the parties to this Agreement agree as follows:
1. Shareholders Representations and
Warranties.
(a) The Shareholder represents and warrants to the Investor
that the Shareholder (i) is the record (except as may be
noted on Exhibit A hereto) beneficial owner of that number
of Shares set forth opposite its name set forth on
Exhibit A hereto, free and clear of any mortgage, pledge,
lien, security interest, claim, restriction on voting or
otherwise or other encumbrance and (ii) has the right to
vote or to direct the voting of such Shares free of any
restriction or limitation.
(b) Neither the execution and delivery of this Agreement
nor the performance by the Shareholder of his obligations
hereunder will result in a violation of, or a default under, or
conflict with any contract, trust, commitment, agreement,
understanding, arrangement or restriction of any kind to which
the Shareholder is a party or by which the Shareholder is bound
or to which the Shares are subject, except, as would not
prevent, delay or otherwise materially impair the
Shareholders ability to perform his obligations hereunder.
Execution, delivery and performance of this Agreement by the
Shareholder will not violate, or require any consent, approval
or notice under, any provision of any judgment, order, decree,
statute, law, rule or regulation applicable to the Shareholder
or the
A-79
Shares, except (x) for any reports under
Sections 13(d) of the Exchange Act as may be required in
connection with this Agreement and the transactions contemplated
hereby or (y) as would not reasonably be expected to
prevent, delay or otherwise materially impair the
Shareholders ability to perform his obligations hereunder.
2. No Other Proxies or Voting
Trusts. The Shareholder hereby revokes any and
all proxies and voting instructions with respect to the Shares
previously given by Shareholder and agrees that he will not
grant or give any other proxies or voting instructions with
respect to the voting of the Shares, enter into any voting trust
or other arrangement or agreement with respect to the voting of
the Shares (and if given or executed, such proxies, voting
instructions, voting trust or other arrangement or agreement
shall not be effective), or agree, in any manner, to vote the
Shares for or against any proposal submitted to the Shareholders
of the Company except in furtherance of the proposals set forth
in paragraph 3.
3. Agreements with Respect to the Shares.
(a) The Shareholder agrees during the Term (as defined in
Section 7 below) of this Agreement:
(i) to vote the Shares (x) in favor of each of the
Shareholder Approvals at every meeting of the Shareholders of
the Company at which such matters are considered and at every
adjournment thereof, and in any other circumstances upon which a
vote, consent or other approval (including by written consent)
relating to the Investment Agreement and the Transactions
contemplated thereby or the Charter Amendment or any of the
other Shareholder Approvals is sought and (y) with respect
to all other proposals submitted to the shareholders of the
Company which, directly or indirectly, in any way relate to the
Investment or any of the other Transactions contemplated by the
Investment Agreement, in such manner as Investor may
direct; and
(ii) not to solicit, encourage or recommend to other
shareholders of the Company that (w) they vote their shares
of Common Stock in any contrary manner, (x) they refrain
from voting their shares, (y) they tender, exchange or
otherwise dispose of their shares of Common Stock pursuant to a
Competing Transaction (as hereinafter defined), or (z) they
attempt to exercise any statutory appraisal or other similar
rights they may have.
(b) Unless otherwise instructed in writing by the Investor,
during the Term of this Agreement, Shareholder will vote the
Shares against any Competing Transaction.
(c) Except with the prior written consent of the Investor,
during the Term of this Agreement, the Shareholder agrees that
the Shareholder will not, and shall use his reasonable best
efforts not to permit any employee, attorney, accountant,
investment banker or other agent or representative of the
Shareholder to, initiate, solicit, negotiate, encourage, or
provide confidential information in order to facilitate any
Competing Transaction.
(d) No person executing this Agreement (or an affiliate
thereof) who is or becomes during the Term of this Agreement a
director of the Company makes any agreement or understanding
herein in his capacity as such director. The Shareholder is
executing this Agreement solely in its capacity as the record
and beneficial owner of the Shareholders Shares.
(e) For purposes of this Agreement, a Competing
Transaction means any of the following (other than the
transactions expressly provided for in and to be effected
pursuant to this Agreement): (i) any merger,
reorganization, consolidation, share exchange, business
combination, liquidation, dissolution, recapitalization or
similar transaction involving the Company; (ii) any direct
or indirect acquisition or purchase, in a single transaction or
series of related transactions, of (x) 20% or more of the
consolidated gross assets of the Company and the Subsidiaries
(as defined in the Investment Agreement), taken as a whole,
(y) 20% or more of any class of voting securities of the
Company or any Subsidiary (or any debt or equity securities
convertible into or exercisable or exchangeable for such amount
of voting securities) or (z) 15% or more of any class of
voting securities of the Company or any Subsidiary (or any debt
or equity securities convertible into or exercisable or
exchangeable for such amount of voting securities) if such
securities carry the right, contractually or otherwise, to
appoint or designate any member or members of the Board; or
(iii) any tender offer or exchange offer that, if
consummated, would result in any Person or group
(within the meaning of Section 13(d)(3) of the Exchange
Act) beneficially owning 20% or more of any class of voting
securities of the Company.
A-80
4. Proxies. In furtherance of the
foregoing, the Shareholder is granting to Christopher Pechock
and Frank Plimpton, representatives of the Investor, and each of
them, with full power of substitution, irrevocable proxies and
powers of attorney (which may be in the form annexed hereto or
such other form consistent with the terms hereof and thereof as
Investor may specify) on the matters described in
paragraph 3, and to execute and deliver any written
consents to fulfill such Shareholders obligations under
this Agreement. This proxy is coupled with an interest and is
irrevocable until the end of the Term of this Agreement, at
which time it shall terminate.
5. Effect of Stock Splits, Stock Dividends,
Recapitalizations, Etc.. In the event of any
stock split, stock dividend, merger, reorganization,
recapitalization or other change in the capital structure of the
Company affecting the Shares or the acquisition of shares of
Common Stock or other voting securities of the Company by the
Shareholder, the number of Shares listed on Exhibit A
beside the name of Shareholder shall be adjusted appropriately
and this Agreement and the obligations hereunder shall attach to
any additional Shares or other voting securities of the Company
issued to or acquired by the Shareholder.
6. Specific Performance. The
Shareholder acknowledges that it will be impossible to measure
in money the damage to Investor if the Shareholder fails to
comply with the obligations imposed by this Agreement, and that,
in the event of any such failure, Investor will not have an
adequate remedy at law or in damages. Accordingly, the
Shareholder agrees that injunctive relief or any other equitable
remedy, in addition to any remedies at law or damages, is the
appropriate remedy for any such failure and will not oppose the
granting of any such remedy on the basis that Investor has an
adequate remedy at law. The Shareholder agrees not to seek, and
agrees to waive any requirement for, the securing or posting of
a bond in connection with Investor seeking or obtaining such
equitable relief.
7. Term of Agreement; Termination.
(a) The term of this Agreement shall commence on the date
hereof and shall terminate upon the earlier to occur of
(i) the Closing (as defined in the Investment Agreement),
(ii) the due and proper termination of the Investment
Agreement in accordance with its terms, or (iii) the mutual
consent of the Investor and the Shareholder (such period from
the date hereof until such termination is referred to herein as
the Term). Upon such termination, no party shall
have any further obligations or liabilities hereunder.
(b) The obligations of the Shareholder set forth in this
Agreement shall not be effective or binding upon the Shareholder
until after such time as the Investment Agreement is executed
and delivered by the Investor and the Company.
8. Miscellaneous.
(a) Entire Agreement. This Agreement
constitutes the entire agreement among the parties with respect
to the subject matter of this Agreement and supersedes all prior
written and oral and all contemporaneous oral agreements and
understandings with respect to the subject matter of this
Agreement.
(b) Notices. Any notice, request,
instruction or other document to be given hereunder by any party
to the others shall be in writing and shall be deemed to have
been duly given on the next business day after the same is sent,
if delivered personally or sent by telecopy or overnight
delivery, or five calendar days after the same is sent, if sent
by registered or certified mail, return receipt requested,
postage prepaid, as set forth below, or to such other persons or
addresses as may be designated in writing in accordance with the
terms hereof by the party to receive such notice.
If to the Investor, to:
MatlinPatterson FA Acquisition LLC
c/o MatlinPatterson
Global Advisers LLC
520 Madison Avenue,
35th
Floor
New York, New York 10022
Attention: General Counsel
Fax:
(212) 651-4011
A-81
with a copy by fax or messenger or courier to:
Sidley Austin LLP
787 Seventh Avenue
New York, New York 10019
Facsimile:
(212) 839-5599
Attention: Duncan N. Darrow and Michael H. Yanowitch
If to Shareholder, to the address set forth below
Shareholders name on Exhibit A.
(c) Governing Law. This Agreement shall
be governed by and construed in accordance with the laws of the
State of New York as applied to contracts made and fully
performed in such state without giving effect to the principles
of conflict of laws thereof. Each party to this Agreement
(Party) submits to the jurisdiction of any state or
federal court sitting in the County of New York in any dispute
or action arising out of or relating to this Agreement and
agrees that all claims in respect of such dispute or action may
be heard and determined in any such court. Each Party also
agrees not to bring any dispute or action arising out of or
relating to this Agreement in any other court. Each Party agrees
that a final judgment in any dispute or action so brought will
be conclusive and may be enforced by action on the judgment or
in any other manner provided at law (common, statutory or other)
or in equity. Each Party waives any defense of inconvenient
forum to the maintenance of any dispute or action so brought and
waives any bond, surety, or other security that might be
required of any other Party with respect thereto.
(d) Rules of Construction. The
descriptive headings in this Agreement are inserted for
convenience of reference only and are not intended to be part of
or to affect the meaning or interpretation of this Agreement.
Words used in this Agreement, regardless of the gender and
number specifically used, shall be deemed and construed to
include any other gender, masculine or feminine, or neuter, and
any other number, singular or plural, as the context requires.
As used in this Agreement, the word including is not
limiting, and the word or is not exclusive.
(e) Parties in Interest. This Agreement
shall be binding upon and inure solely to the benefit of the
parties to this Agreement and their legal
successors-in-interest,
and nothing in this Agreement, express or implied, is intended
to confer upon any other person any rights or remedies of any
nature whatsoever under or by reason of this Agreement.
(f) Counterparts. This Agreement may be
executed in one or more counterparts, and each of such
counterparts shall for all purposes be deemed to be an original,
but all such counterparts together shall constitute but one
instrument.
(g) Assignment. No party hereto shall
assign its rights and obligations under this Agreement or any
part thereof, nor shall any party assign or delegate any of its
rights or duties hereunder without the prior written consent of
the other party, and any assignment made without such consent
shall be void. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted
assigns.
(h) Amendment. This Agreement may not be
amended except by an instrument in writing signed on behalf of
all the parties.
(i) Extension; Waiver. Any party to this
Agreement may extend the time for the performance of any of the
obligations or other acts of any of the other parties to this
Agreement or waive compliance by any other party with any of the
agreements or conditions contained herein or any breach thereof.
Any agreement on the part of any party to any such extension or
waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
(j) Severability. If any term, provision,
covenant or restriction herein, or the application thereof to
any circumstance, shall, to any extent, be held by a court of
competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions
herein and the application thereof to any other circumstances
shall remain in full force and effect, shall not in any way be
affected, impaired or invalidated, and shall be enforced to the
fullest extent permitted by law.
A-82
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound hereby, have duly executed this Voting Agreement on the
date first above written.
THE INVESTOR:
MATLINPATTERSON FA ACQUISITION LLC
Name: ROBERT A. WEISS
THE SHAREHOLDER:
PETER MCNIERNEY
A-83
Exhibit A
to
Voting Agreement
Shares Subject to Voting Control; Notice Address
A. Shares
of Common Stock Subject to Shareholders Voting
Control
394,802 shares of Common Stock
B. Address
for Notices
PETER MCNIERNEY
c/o First
Albany Companies Inc.
677 Broadway
Albany, NY 12207
A-84
FORM OF
IRREVOCABLE PROXY AND POWER OF ATTORNEY
The undersigned hereby appoints Christopher Pechock and Frank
Plimpton, and each of them separately, with full power of
substitution, for and in the undersigneds name, to vote,
express consent or disapproval, or otherwise act in such manner
(including pursuant to written consent, but excluding the right
to assert, perfect and prosecute dissenters rights of
appraisal) and upon such matters as Christopher Pechock
and/or Frank
Plimpton or their respective proxies or substitutes shall, in
their sole discretion, deem proper with respect to all of the
shares of Common Stock of First Albany Companies Inc., a New
York corporation, owned beneficially or of record by the
undersigned.
The proxy granted hereby shall be irrevocable and may be
exercised at any meeting of Shareholders, notice of which is
given, or in respect of any written consent which is solicited
prior to the due and proper termination of, and subject to and
in accordance with the terms and conditions of, the Voting
Agreement, dated as of May 14, 2007, between the
undersigned and Matlinpatterson FA Acquisition LLC. This proxy
is coupled with an interest sufficient in law to support such
proxy.
PETER MCNIERNEY
Dated: May 14, 2007
A-85
AMENDMENT
NO. 1 TO RIGHTS AGREEMENT
This AMENDMENT NO. 1 (this Amendment), dated as of
May 14, 2007, by and between First Albany Companies Inc., a
New York corporation (the Company) and American
Stock Transfer & Trust Company, as rights agent
(the Rights Agent), to the Rights Agreement, dated
as of March 30, 1998 (the Rights Agreement).
Capitalized terms used in this Amendment without definition
shall have the meanings given to them in the Rights Agreement.
WHEREAS, the Company and the Rights Agent have heretofore
executed and entered into the Rights Agreement;
WHEREAS, as of the date hereof no Person is an Acquiring Person
as defined in the Rights Agreement;
WHEREAS, Section 27 of the Rights Agreement provides that
the Company may from time to time and the Rights Agent shall, if
the Company so directs, supplement or amend this Rights
Agreement without the approval of any holders of Right
Certificates to make any provisions with respect to the Rights
which the Company may deem necessary or desirable;
WHEREAS, the Board of Directors of the Company has determined
that an amendment to the Rights Agreement is necessary and
desirable to effect the events set forth below and the Company
and the Rights Agent desire to evidence such amendment in
writing;
WHEREAS, the Company and MatlinPatterson FA Acquisition LLC, a
Delaware limited liability company (Investor) will
enter into an Investment Agreement of even date herewith (the
Investment Agreement), pursuant to which, among
other things, the Investor will purchase from the Company
33,333,333 shares of the Companys common stock and
related Rights, as adjusted pursuant to the Investment Agreement
(the Investment); and
WHEREAS, the Company desires to make certain amendments to the
Rights Agreement to take into account the transactions
contemplated by the Investment Agreement, and it is a condition
to the consummation of the transactions contemplated by the
Investment Agreement that the Company effect this Amendment as
set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth in the Rights Agreement and this Amendment,
the parties hereto hereby agree as follows:
1. Section 1(a) of the Rights Agreement is
hereby amended and restated in its entirety to read as follows:
Acquiring Person shall mean any Person (as
such term is hereinafter defined) who or which, together with
all Affiliates and Associates (as such terms are hereinafter
defined) of such Person, shall be the Beneficial Owner (as such
term is hereinafter defined) of 15% or more of the Common Shares
of the Company then outstanding, but shall not include the
Company, any Subsidiary (as such term is hereinafter defined) of
the Company, any employee benefit plan of the Company or any
Subsidiary of the Company, or an entity holding Common Shares of
the Company for or pursuant to the terms of any such plan.
Notwithstanding the foregoing, (i) no Person shall become
an Acquiring Person as the result of an acquisition
of Common Shares by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to 15% or more of the Common
Shares of the Company then outstanding; provided, however, that
if a Person shall become the Beneficial Owner of 15% or more of
the Common Shares of the Company then outstanding by reason of
share purchases by the Company and shall, after such share
purchases by the Company, become the Beneficial Owner of any
additional Common Shares of the Company, then such Person shall
be deemed to be an Acquiring Person;
(ii) George C. McNamee, Alan P. Goldberg (in each case
together with their respective Affiliates and Associates) or any
group (as defined in Section 13(d) of the Securities
Exchange Act of 1934, as amended (the Exchange Act))
in which either of them is a member (in each case, only for so
long as he is the Beneficial Owner of at least 5% of the Common
Shares) shall not be deemed an Acquiring Person; and
(iii) MatlinPatterson (together with its Affiliates and
Associates) or any group (as defined in Section 13(d) of
the Exchange Act) in which it is a member shall not be deemed an
Acquiring Person; provided, however, that if the
Investment Agreement is terminated prior to the Closing Date (as
defined in the Investment Agreement) for any reason in
accordance with its terms or otherwise, the provisions of this
paragraph (a)(iii) shall cease to apply.
A-86
2. Section 1 of the Rights Agreement is further
amended and supplemented by adding the following sentence at the
end of the definition of Distribution Date:
Notwithstanding anything in this Agreement to the contrary, a
Distribution Date shall not be deemed to occur solely as a
result of the execution and delivery of the Voting Agreements
(as defined in the Investment Agreement) and the Investment
Agreement, the consummation of the Investment or any of the
other transactions contemplated by the Investment Agreement or
the public announcement of any of the foregoing; provided,
however, that if the Investment Agreement is terminated prior to
the Closing Date (as defined in the Investment Agreement) for
any reason in accordance with its terms or otherwise, the
provisions of this sentence shall cease to apply.
3. Section 1 of the Rights Agreement is further
amended and supplemented by adding the following sentence at the
end of the definition of Shares Acquisition Date:
Notwithstanding anything in this Agreement to the contrary, a
Shares Acquisition Date shall not be deemed to occur solely as a
result of the execution and delivery of the Voting Agreements
and the Investment Agreement or the consummation of the
Investment or any of the other transactions contemplated by the
Investment Agreement; provided, however, that if the Investment
Agreement is terminated for any reason in accordance with its
terms or otherwise, the provisions of this sentence shall cease
to apply.
4. Section 1 of the Rights Agreement is further
amended and supplemented by adding the following definitions in
correct alphabetical order:
MatlinPatterson shall mean MatlinPatterson FA
Acquisition LLC, a Delaware limited liability company.
Investment shall mean that certain investment
pursuant to which, among other things, the Investor will
purchase from the Company 33,333,333 shares of the
Companys common stock and related Rights, as adjusted,
upon the terms and subject to the conditions set forth in the
Investment Agreement.
Investment Agreement shall mean that certain
Investment Agreement dated as of May 14, 2007, between the
Company and MatlinPatterson FA Acquisition LLC, a Delaware
limited liability company.
5. The term Agreement as used in the
Rights Agreement shall be deemed to refer to the Rights
Agreement, as amended hereby. Except as set forth herein, the
Rights Agreement shall remain in full force and effect and shall
be otherwise unaffected hereby. In the event of any conflict or
inconsistency between the provisions of this Amendment on the
one hand and the Rights Agreement on the other hand, with
respect to the matters set forth herein or contemplated hereby,
the provisions of this Amendment shall govern such conflict or
inconsistency.
6. If any term, provision, covenant or restriction of
this Amendment is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions
of this Amendment shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
7. This Amendment may be executed in any number of
counterparts, and each such counterpart shall for all purposes
be deemed an original, but all such counterparts shall together
constitute but one and the same agreement.
8. This Amendment shall be deemed to be a contract
made under the laws of the State of Delaware and for all
purposes shall be governed by and construed in accordance with
the laws of such state applicable to contracts to be made and
performed entirely within such state.
9. In all respects not inconsistent with the terms
and provisions of this Amendment, the Rights Agreement is hereby
ratified, adopted, approved and confirmed.
A-87
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the day and year first above
written.
FIRST ALBANY COMPANIES INC.
Name: Peter McNierney
AMERICAN STOCK TRANSFER & TRUST COMPANY
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By:
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/s/ Herbert
J. Lemmer
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Name: Herbert J. Lemmer
A-88
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Freeman & Co.
Securities llc
645 Fifth Avenue, 9th Floor New York, NY 10022
Phone: Facsimile: 212
830-6161 212 265-4998
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May 14th, 2007
Board of Directors
First Albany Companies Inc.
677 Broadway
Albany, NY
12207-2990
Ladies & Gentlemen:
You have requested our opinion as to the fairness, from a
financial point of view, to First Albany Companies Inc. (the
Company) of the Consideration (as defined below) to
be paid to the Company, pursuant to the terms of the Investment
Agreement dated as of May 13th, 2007 (the
Agreement), by and among the Company and
MatlinPatterson FA Acquisition LLC and Affiliates
(Investor) for 33,333,333 unregistered shares of
common stock of the Company, as determined, delivered and
adjusted in accordance with the terms of Article II of the
Agreement (the Shares).
As more specifically set forth in the Agreement, and subject to
the terms, conditions and adjustments set forth in the
Agreement, the Company will sell the Shares to Investor (the
Transaction). The aggregate consideration to be paid
by Investor to the Company is $50.0 million in cash
(the Consideration).
Freeman & Co. Securities, LLC
(Freeman), as part of its investment banking
business, is continually engaged in the valuation of businesses
and their securities in connection with mergers and
acquisitions, private placements and valuations for corporate
and other purposes.
We are acting as exclusive financial advisor to the Board of
Directors of the Company in connection with the Transaction and
will receive a fee from the Company for our services pursuant to
the terms of our engagement letter with the Company, dated as of
May 10th,
2007. Incorporated within that agreement is a fee for providing
this Opinion. Freeman and its affiliates in the ordinary course
of business may have from time to time provided, and in the
future may provide, consulting and investment banking services
to the Company and receive fees for the rendering of such
services.
In connection with our opinion, we have reviewed and considered
such financial and other matters as we have deemed relevant,
including, among other things:
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the Agreement including the financial terms of the Transaction;
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certain publicly available information for the Company and
certain other relevant financial and operating data furnished to
Freeman by the Company management;
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certain internal financial analyses, financial forecasts,
reports and other information concerning the Company , prepared
by the managements of the Company;
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discussions we have had with certain members of the management
of the Company concerning the historical and current business
operations, financial conditions and prospects of the Company
and such other matters we deemed relevant;
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certain operating results, the reported price
and/or
trading histories of the shares of the common stock of the
Company as compared to operating results, the reported price and
trading histories of certain publicly traded companies we deemed
relevant;
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B-1
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certain financial terms of the Transaction as compared to the
financial terms of certain selected business combinations we
deemed relevant;
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certain pro forma financial effects of the Transaction on an
accretion/dilution basis including pro-forma operating cost
reductions; and
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such other information, financial studies, analyses and
investigations and such other factors that we deemed relevant
for the purposes of this opinion.
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In conducting our review and arriving at our opinion, we have,
with your consent, assumed and relied, without independent
investigation, upon the accuracy and completeness of all
financial and other information provided to us by the Company or
which is publicly available. We have not undertaken any
responsibility for the accuracy, completeness or reasonableness
of, or independently verify, such information. In addition, we
have not conducted nor have assumed any obligation to conduct
any physical inspection of the properties or facilities of the
Company. We have further relied upon the assurance of management
of the Company that they are unaware of any facts that would
make the information provided to us incomplete or misleading in
any respect. We have, with your consent, assumed that the
financial forecasts which we examined were reasonably prepared
by the management of the Company on bases reflecting the best
currently available estimates and good faith judgments of such
management as to the future performance of the Company.
We have not made or obtained any independent evaluations,
valuations or appraisals of the assets or liabilities of the
Company, nor have we been furnished with such materials. With
respect to all legal matters relating to the Company, we have
relied on the advice of legal counsel to the Company. Our
services to the Company in connection with the Transaction have
been to bring both potential investors and acquirers to the
Company, assist management in those negotiations and render an
opinion from a financial point of view with respect to the
Consideration. Our opinion is necessarily based upon economic
and market conditions and other circumstances as they exist and
can be evaluated by us on the date hereof. It should be
understood that although subsequent developments may affect our
opinion, we do not have any obligation to update, revise or
reaffirm our opinion and we expressly disclaim any
responsibility to do so.
For purposes of rendering our opinion we have assumed in all
respects material to our analysis, that the representations and
warranties of each party contained in the Agreement are true and
correct, that each party will perform all of the covenants and
agreements required to be performed by it under the Agreement
and that all conditions to the consummation of the Transaction
will be satisfied without waiver thereof. We have also assumed
that all governmental, regulatory and other consents and
approvals contemplated by the Agreement will be obtained and
that in the course of obtaining any of those consents no
restrictions will be imposed or waivers made that would have an
adverse effect on the contemplated benefits of the Transaction.
It is understood that this letter is intended for the benefit
and use of the Board of Directors of the Company in its
consideration of the Transaction and may not be used for any
other purpose or reproduced, disseminated, quoted or referred to
at any time, in any manner or for any purpose without our prior
written consent. This letter does not constitute a
recommendation to any stockholder of the Company to take any
other action in connection with the Transaction or otherwise. We
have not been requested to opine as to, and our opinion does not
in any manner address, the Companys underlying business
decision to effect the Transaction. Furthermore, we express no
view as to the price or trading range for shares of the common
stock of the Company following the consummation of the
Transaction.
B-2
Based upon and subject to the foregoing, including the various
assumptions and limitations set forth herein, it is our opinion
that, as of the date hereof, the Consideration to be paid in the
Transaction is fair, from a financial point of view, to the
Company.
Very truly yours,
Peter J. Majar, Jr.
Managing Director
Freeman & Co. Securities, LLC
B-3
CERTIFICATE
OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF FIRST ALBANY COMPANIES INC.
UNDER SECTION 805 OF THE NEW YORK BUSINESS CORPORATION
LAW
WE, THE UNDERSIGNED, Peter J. McNierney and Patricia
Arciero-Craig, being respectively the President and Assistant
Secretary of First Albany Companies Inc., (the
Corporation) hereby certify:
1. The name of the Corporation is First Albany
Companies Inc.
2. The Certificate of Incorporation of the
Corporation was filed by the Department of State on
November 4, 1985 and has been amended and restated at
various times by action of the Board of Directors and
shareholders of the Corporation.
3. The Amended and Restated Certificate of
Incorporation is hereby amended by deleting and replacing
Article FOURTH in its entirety by inserting in lieu thereof
the following:
FOURTH, the aggregate number of shares which the
Corporation shall have authority to issue is
100,000,000 shares of Common Stock, par value $.01 per
share and 1,500,000 shares of Preferred Stock par value
$1.00 per share.
4. The Amended and Restated Certificate of
Incorporation is hereby further amended by adding an
Article NINTH as follows:
NINTH, To the fullest extent now or hereafter permitted by
law, no director of the corporation shall be personally liable
to the corporation or its shareholders for damages for any
breach of duty in such capacity.
5. The foregoing amendments to the Amended and
Restated Certificate of Incorporation were authorized by the
resolution of the Board of Directors followed by an affirmative
vote of the holders of a majority of the outstanding shares of
common stock of the Corporation entitled to vote thereon.
IN WITNESS WHEREOF, we have signed this certificate on
the day
of ,
2007 and we affirm the statements contained therein as a true
under penalties of perjury.
President
C-1
APPENDIX D
FINANCIAL INFORMATION OF
FIRST ALBANY COMPANIES INC. AND SUBSIDIARIES
INDEX
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Page
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Audited Consolidated Financial
Statements for the fiscal year ended December 31,
2006
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D-2
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D-3
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D-4
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D-5
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D-6
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D-8
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D-42
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D-44
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D-59
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Financial Statements for the
period ended June 30, 2007
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D-62
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D-63
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D-64
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D-66
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D-87
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D-103
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D-1
Report
of Independent Registered Public Accounting Firm
To the Board
of Directors and Stockholders of
First Albany Companies Inc.
We have completed integrated audits of First Albany Companies
Inc.s consolidated financial statements and of its
internal control over financial reporting as of
December 31, 2006, in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Our
opinions, based on our audits, are presented below.
Consolidated
financial statements and financial statement
schedule
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of First Albany
Companies Inc. and its subsidiaries (the Company) at
December 31, 2006 and 2005, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2006 in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(a)(2)
presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related
consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit of financial statements
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
As disclosed in footnote 16 to the consolidated financial
statements, in 2006, the Company adopted Financial Accounting
Standards Board Statement No. 123(R) Share
Based Payments.
Internal
control over financial reporting
Also, in our opinion, managements assessment, included in
Managements Report on Internal Control over Financial
Reporting appearing under Item 9a, that the Company
maintained effective internal control over financial reporting
as of December 31, 2006 based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects,
based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2006
based on criteria established in Internal Control
Integrated Framework issued by the COSO. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on managements
assessment and on the effectiveness of the Companys
internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting
in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PRICEWATERHOUSECOOPERS
LLP
Albany, New York
March 9, 2007, except for Note 26D
as to which the date is June 22, 2007.
D-2
First
Albany Companies Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
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Years Ended December 31
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2006
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2005
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2004
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(In thousands of dollars, except per
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share amounts)
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Revenues
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Commissions
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$
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11,799
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$
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17,513
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$
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19,799
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Principal transactions
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57,698
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54,221
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57,192
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Investment banking
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47,418
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47,441
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45,932
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Investment gains (losses)
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(7,602
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)
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21,591
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10,070
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Interest income
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14,331
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15,220
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9,474
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Fees and others
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1,871
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3,391
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1,938
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Total revenues
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125,515
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159,377
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144,405
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Interest expense
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15,903
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12,580
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6,047
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Net revenues
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109,612
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146,797
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138,358
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Expenses (excluding
interest)
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|
|
|
|
|
Compensation and benefits
|
|
|
101,460
|
|
|
|
99,565
|
|
|
|
104,919
|
|
Clearing, settlement and brokerage
costs
|
|
|
6,113
|
|
|
|
8,621
|
|
|
|
6,196
|
|
Communications and data processing
|
|
|
11,404
|
|
|
|
11,794
|
|
|
|
12,323
|
|
Occupancy and depreciation
|
|
|
11,127
|
|
|
|
11,162
|
|
|
|
8,496
|
|
Selling
|
|
|
4,922
|
|
|
|
5,951
|
|
|
|
6,661
|
|
Impairment
|
|
|
7,886
|
|
|
|
|
|
|
|
1,375
|
|
Restructuring
|
|
|
|
|
|
|
|
|
|
|
1,275
|
|
Other
|
|
|
8,254
|
|
|
|
6,158
|
|
|
|
12,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses (excluding interest)
|
|
|
151,166
|
|
|
|
143,251
|
|
|
|
153,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes,
discontinued operations and cumulative effect of an accounting
change
|
|
|
(41,554
|
)
|
|
|
3,546
|
|
|
|
(15,066
|
)
|
Income tax expense (benefit)
|
|
|
153
|
|
|
|
8,481
|
|
|
|
(9,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(41,707
|
)
|
|
|
(4,935
|
)
|
|
|
(5,495
|
)
|
Income (Loss) from discontinued
operations, net of taxes
|
|
|
(2,701
|
)
|
|
|
(5,282
|
)
|
|
|
1,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of
an accounting change
|
|
|
(44,408
|
)
|
|
|
(10,217
|
)
|
|
|
(3,587
|
)
|
Cumulative effect of an accounting
change, (net of taxes $0 in 2006) (see Benefit Plans
note)
|
|
|
427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(43,981
|
)
|
|
$
|
(10,217
|
)
|
|
$
|
(3,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(2.75
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.44
|
)
|
Discontinued operations
|
|
|
(0.18
|
)
|
|
|
(0.38
|
)
|
|
|
0.15
|
|
Cumulative effect of an accounting
change
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
$
|
(2.90
|
)
|
|
$
|
(0.74
|
)
|
|
$
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(2.75
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(0.44
|
)
|
Discontinued operations
|
|
|
(0.18
|
)
|
|
|
(0.38
|
)
|
|
|
0.15
|
|
Cumulative effect of an accounting
change
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
$
|
(2.90
|
)
|
|
$
|
(0.74
|
)
|
|
$
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
D-3
First
Albany Companies Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
As of
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands of dollars)
|
|
|
ASSETS
|
Cash
|
|
$
|
4,192
|
|
|
$
|
1,926
|
|
Cash and securities segregated
under federal regulations
|
|
|
5,200
|
|
|
|
7,100
|
|
Securities purchased under
agreement to resell
|
|
|
14,083
|
|
|
|
27,824
|
|
Receivables from:
|
|
|
|
|
|
|
|
|
Brokers, dealers and clearing
agencies
|
|
|
10,626
|
|
|
|
36,221
|
|
Customers, net
|
|
|
2,898
|
|
|
|
5,346
|
|
Others
|
|
|
6,933
|
|
|
|
7,015
|
|
Securities owned
|
|
|
276,167
|
|
|
|
265,794
|
|
Investments
|
|
|
12,250
|
|
|
|
52,497
|
|
Office equipment and leasehold
improvements, net
|
|
|
4,516
|
|
|
|
10,304
|
|
Intangible assets
|
|
|
17,862
|
|
|
|
25,990
|
|
Other assets
|
|
|
2,391
|
|
|
|
3,524
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
357,118
|
|
|
$
|
443,541
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS
EQUITY
|
Liabilities
|
|
|
|
|
|
|
|
|
Short-term bank loans
|
|
$
|
128,525
|
|
|
$
|
150,075
|
|
Payables to:
|
|
|
|
|
|
|
|
|
Brokers, dealers and clearing
agencies
|
|
|
49,065
|
|
|
|
50,595
|
|
Customers
|
|
|
1,151
|
|
|
|
3,263
|
|
Others
|
|
|
8,996
|
|
|
|
14,099
|
|
Securities sold, but not yet
purchased
|
|
|
52,120
|
|
|
|
52,445
|
|
Accounts payable
|
|
|
4,118
|
|
|
|
6,696
|
|
Accrued compensation
|
|
|
32,445
|
|
|
|
25,414
|
|
Accrued expenses
|
|
|
8,273
|
|
|
|
8,960
|
|
Income taxes payable
|
|
|
131
|
|
|
|
|
|
Notes payable
|
|
|
12,667
|
|
|
|
30,027
|
|
Obligations under capitalized
leases
|
|
|
3,522
|
|
|
|
5,564
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
301,013
|
|
|
|
347,138
|
|
|
|
|
|
|
|
|
|
|
Commitments and
Contingencies
|
|
|
|
|
|
|
|
|
Temporary capital
|
|
|
104
|
|
|
|
3,374
|
|
Subordinated debt
|
|
|
4,424
|
|
|
|
5,307
|
|
|
|
|
|
|
|
|
|
|
Stockholders
Equity
|
|
|
|
|
|
|
|
|
Preferred stock; $1.00 par
value; authorized 500,000 shares; none issued Common stock;
$.01 par value; authorized 50,000,000 shares; issued
17,613,827 in 2006 and 17,129,649 in 2005 respectively
|
|
|
176
|
|
|
|
171
|
|
Additional paid-in capital
|
|
|
152,573
|
|
|
|
158,470
|
|
Unearned compensation
|
|
|
|
|
|
|
(13,882
|
)
|
Deferred compensation
|
|
|
2,647
|
|
|
|
3,448
|
|
Accumulated deficit
|
|
|
(100,605
|
)
|
|
|
(56,624
|
)
|
Treasury stock, at cost
(1,168,748 shares in 2006 and 808,820 shares in 2005)
|
|
|
(3,214
|
)
|
|
|
(3,861
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
51,577
|
|
|
|
87,722
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Stockholders Equity
|
|
$
|
357,118
|
|
|
$
|
443,541
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
D-4
First
Albany Companies Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
AND
TEMPORARY CAPITAL
For the Years Ended December 31, 2006, 2005 and
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Temporary
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Unearned
|
|
|
Deferred
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Income, Net
|
|
|
Shares
|
|
|
Amount
|
|
|
|
(In thousands of dollars except for number of shares)
|
|
|
Balance December 31, 2003
|
|
$
|
|
|
|
|
11,995,247
|
|
|
$
|
120
|
|
|
$
|
109,531
|
|
|
$
|
(5,229
|
)
|
|
$
|
2,699
|
|
|
$
|
(20,160
|
)
|
|
$
|
|
|
|
|
(541,867
|
)
|
|
$
|
(3,527
|
)
|
Amortization of unearned
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock, net
of forfeitures
|
|
|
|
|
|
|
1,380,400
|
|
|
|
14
|
|
|
|
18,967
|
|
|
|
(17,147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(175,460
|
)
|
|
|
(706
|
)
|
Cash dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
546,797
|
|
|
|
5
|
|
|
|
5,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162,095
|
|
|
|
736
|
|
Options expense recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock trust
|
|
|
|
|
|
|
99,221
|
|
|
|
1
|
|
|
|
956
|
|
|
|
|
|
|
|
1,005
|
|
|
|
|
|
|
|
|
|
|
|
(77,669
|
)
|
|
|
(764
|
)
|
Employee benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,018
|
|
|
|
64
|
|
Private placement
|
|
|
|
|
|
|
896,040
|
|
|
|
9
|
|
|
|
9,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares, Descap
acquisition
|
|
|
3,374
|
|
|
|
549,476
|
|
|
|
6
|
|
|
|
2,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special dividend
distribution of Plug Power Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2004
|
|
|
3,374
|
|
|
|
15,467,181
|
|
|
|
155
|
|
|
|
147,059
|
|
|
|
(15,061
|
)
|
|
|
3,704
|
|
|
|
(45,575
|
)
|
|
|
|
|
|
|
(619,883
|
)
|
|
|
(4,197
|
)
|
Amortization of unearned
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock, net
of forfeitures
|
|
|
|
|
|
|
1,289,592
|
|
|
|
13
|
|
|
|
9,039
|
|
|
|
(8,715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(274,640
|
)
|
|
|
66
|
|
Cash dividends paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
33,988
|
|
|
|
|
|
|
|
213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,103
|
|
|
|
122
|
|
Options expense recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,300
|
)
|
|
|
(186
|
)
|
Employee stock trust
|
|
|
|
|
|
|
34,449
|
|
|
|
|
|
|
|
283
|
|
|
|
|
|
|
|
(256
|
)
|
|
|
|
|
|
|
|
|
|
|
48,900
|
|
|
|
334
|
|
Issuance of shares, Descap
acquisition
|
|
|
|
|
|
|
304,439
|
|
|
|
3
|
|
|
|
1,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2005
|
|
|
3,374
|
|
|
|
17,129,649
|
|
|
|
171
|
|
|
$
|
158,470
|
|
|
|
(13,882
|
)
|
|
|
3,448
|
|
|
|
(56,624
|
)
|
|
|
|
|
|
|
(808,820
|
)
|
|
|
(3,861
|
)
|
Amortization of unearned
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock, net
of forfeitures
|
|
|
|
|
|
|
446,472
|
|
|
|
5
|
|
|
|
745
|
|
|
|
(968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,751
|
|
|
|
184
|
|
Options exercised
|
|
|
|
|
|
|
4,668
|
|
|
|
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,800
|
|
|
|
5
|
|
Options expense recognized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(83,086
|
)
|
|
|
(368
|
)
|
Employee stock trust
|
|
|
|
|
|
|
33,038
|
|
|
|
|
|
|
|
220
|
|
|
|
|
|
|
|
(801
|
)
|
|
|
|
|
|
|
|
|
|
|
140,091
|
|
|
|
826
|
|
Repurchase of shares, Descap
acquisition
|
|
|
(3,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(532,484
|
)
|
|
|
|
|
Reclass unearned compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,029
|
)
|
|
|
7029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43,981
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006
|
|
$
|
104
|
|
|
|
17,613,827
|
|
|
$
|
176
|
|
|
$
|
152,573
|
|
|
$
|
0
|
|
|
$
|
2,647
|
|
|
$
|
(100,605
|
)
|
|
$
|
|
|
|
|
(1,168,748
|
)
|
|
$
|
(3,214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
D-5
First
Albany Companies Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands of dollars)
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(43,981
|
)
|
|
$
|
(10,217
|
)
|
|
$
|
(3,587
|
)
|
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,475
|
|
|
|
3,666
|
|
|
|
2,806
|
|
Amortization of warrants
|
|
|
498
|
|
|
|
199
|
|
|
|
199
|
|
Intangible asset impairment (see
Intangible Asset note)
|
|
|
9,485
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
245
|
|
|
|
362
|
|
|
|
1,192
|
|
Deferred income taxes
|
|
|
|
|
|
|
8,510
|
|
|
|
(10,530
|
)
|
Unrealized investment (gains) loss
|
|
|
36,674
|
|
|
|
(15,924
|
)
|
|
|
6,367
|
|
Realized (gains) losses on sale of
investments
|
|
|
(29,072
|
)
|
|
|
(5,667
|
)
|
|
|
(16,437
|
)
|
(Gain) loss on fixed assets
|
|
|
(21
|
)
|
|
|
(70
|
)
|
|
|
|
|
Software Impairment loss
|
|
|
|
|
|
|
|
|
|
|
823
|
|
Services provided in exchange for
common stock
|
|
|
7,905
|
|
|
|
10,371
|
|
|
|
10,486
|
|
Changes in operating assets and
liabilities, net of effects from purchase of Descap Securities,
Inc. in 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and securities segregated
under federal regulations
|
|
|
1,900
|
|
|
|
(7,100
|
)
|
|
|
|
|
Securities purchased under
agreement to resell
|
|
|
13,741
|
|
|
|
7,204
|
|
|
|
21,233
|
|
Net receivable from customers
|
|
|
336
|
|
|
|
(375
|
)
|
|
|
(3,426
|
)
|
Securities owned, net
|
|
|
(10,698
|
)
|
|
|
(51,087
|
)
|
|
|
57,951
|
|
Other assets
|
|
|
1,134
|
|
|
|
1,003
|
|
|
|
1,618
|
|
Net payable to brokers, dealers,
and clearing agencies
|
|
|
24,065
|
|
|
|
43,868
|
|
|
|
(65,443
|
)
|
Net payable to others
|
|
|
1,136
|
|
|
|
1,840
|
|
|
|
1,247
|
|
Accounts payable and accrued
expenses
|
|
|
4,003
|
|
|
|
(10,131
|
)
|
|
|
(11,450
|
)
|
Income taxes payable, net
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
19,956
|
|
|
|
(23,548
|
)
|
|
|
(6,951
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of office equipment and
leasehold improvements
|
|
|
(2,897
|
)
|
|
|
(1,216
|
)
|
|
|
(1,667
|
)
|
Sales of furniture, equipment and
leaseholds
|
|
|
5,051
|
|
|
|
118
|
|
|
|
|
|
Payment for purchase of Descap
Securities, Inc., net of cash acquired
|
|
|
(3,720
|
)
|
|
|
(538
|
)
|
|
|
(21,536
|
)
|
Payment for purchase of Noddings,
net of cash acquired
|
|
|
|
|
|
|
(125
|
)
|
|
|
(583
|
)
|
Purchases of investments
|
|
|
(4,819
|
)
|
|
|
(4,478
|
)
|
|
|
(7,200
|
)
|
Proceeds from sale of investments
|
|
|
35,803
|
|
|
|
16,199
|
|
|
|
10,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
29,418
|
|
|
|
9,960
|
|
|
|
(19,992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Payments) proceeds of short-term
bank loans, net
|
|
|
(21,550
|
)
|
|
|
10,200
|
|
|
|
1,375
|
|
Proceeds of notes payable
|
|
|
9,025
|
|
|
|
5,164
|
|
|
|
20,000
|
|
Payments of notes payable
|
|
|
(26,883
|
)
|
|
|
(7,564
|
)
|
|
|
(2,393
|
)
|
Payments of obligations under
capitalized leases
|
|
|
(2,239
|
)
|
|
|
(1,509
|
)
|
|
|
(2,050
|
)
|
Proceeds from obligations under
capitalized leases
|
|
|
|
|
|
|
219
|
|
|
|
|
|
Payments for purchases of common
stock
|
|
|
(367
|
)
|
|
|
(186
|
)
|
|
|
|
|
Proceeds from subordinated debt
|
|
|
160
|
|
|
|
|
|
|
|
|
|
Payments on subordinated debt
|
|
|
(1,288
|
)
|
|
|
|
|
|
|
(26
|
)
|
Proceeds from issuance of common
stock under stock option plans
|
|
|
55
|
|
|
|
522
|
|
|
|
4,721
|
|
Proceeds from issuance of private
placement
|
|
|
|
|
|
|
|
|
|
|
9,327
|
|
Net (decrease) increase in drafts
payable
|
|
|
(4,021
|
)
|
|
|
8,215
|
|
|
|
99
|
|
Dividends paid
|
|
|
|
|
|
|
(832
|
)
|
|
|
(2,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities
|
|
$
|
(47,108
|
)
|
|
$
|
14,229
|
|
|
$
|
28,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash
|
|
$
|
2,266
|
|
|
$
|
641
|
|
|
$
|
1,128
|
|
Cash at beginning of the year
|
|
|
1,926
|
|
|
|
1,285
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at the end of the year
|
|
$
|
4,192
|
|
|
$
|
1,926
|
|
|
$
|
1,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW DISCLOSURES
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax payments
|
|
$
|
144
|
|
|
$
|
950
|
|
|
$
|
861
|
|
Interest payments
|
|
$
|
16,057
|
|
|
$
|
12,491
|
|
|
$
|
5,975
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
D-6
NON CASH
INVESTING AND FINANCING ACTIVITIES
In 2006, 2005 and 2004, the Company entered into capital leases
for office and computer equipment totaling approximately
$0.2 million, $4.0 million and $2.0 million,
respectively.
During the years ended December 31, 2006, 2005 and 2004,
the Company converted $0.2 million, $1.6 and
$0.0 million, respectively of accrued compensation to
subordinated debt.
During the years ended December 31, 2006 and 2005,
Intangible assets increased $1.0 million and
$2.2 million, respectively, due to additional consideration
payable at December 31, 2006 and December 31, 2005 to
the sellers of Descap Securities, Inc. Up to 75% of this payable
may be satisfied with the Companys stock.
As of December 31, 2006, 2005 and 2004, the Company
acquired $0.0 million, $3.1 million and
$1.2 million in office equipment and leasehold improvements
where the obligation related to this acquisition is included in
accounts payable.
During the years ended December 31, 2006, 2005 and 2004,
the Company distributed $1.0 million, $0.6 million and
$0.2 million, respectively, of the Companys stock
from the employee stock trust to satisfy deferred compensation
liabilities payable to employees (see Stockholders
Equity Note).
During the year ended December 31, 2006, the Company
reversed a $1.5 million rent accrual related to the
surrender of one of its office leases.
Refer to Business Combination note for assets and
liabilities acquired related to the purchase of Descap
Securities, Inc. Refer to Benefit Plans note for
non-cash financing activities related to restricted stock. Refer
to the Investments note for non-cash investing
activities related to the Employee Investment Funds.
The accompanying notes are an integral part of these
consolidated financial statements.
D-7
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., its wholly owned subsidiaries (the
Company), and Employee Investment Funds (see
Investments note). First Albany Capital Inc.
(First Albany Capital) is the Companys
principal subsidiary and a registered broker-dealer. First
Albany Capital is registered with the Securities and Exchange
Commission (SEC) and is a member of various
exchanges and the National Association of Securities Dealers,
Inc. Descap Securities, Inc. (Descap), which was
acquired by the Company in 2004, is a broker-dealer registered
with the SEC and is a member of the National Association of
Securities Dealers, Inc. The Companys primary business is
investment banking and securities brokerage for institutional
customers primarily in the United States. The Company also
provides investment-banking services to corporate and public
clients, and engages in market making and trading of corporate,
government and municipal securities primarily in the United
States. First Albany Capital Limited, a subsidiary formed in
January 2006, provides securities brokerage to institutional
investors in the United Kingdom and Europe. Another of the
Companys subsidiaries is FA Technology Ventures
Corporation (FATV) which manages private equity
funds, which provides venture financing to emerging growth
companies primarily in the United States. All significant
intercompany balances and transactions have been eliminated in
consolidation. FA Asset Management Inc. is also a subsidiary of
the Company. In September 2006, the Company committed to a plan
to dispose of its Institutional Convertible Bond Arbitrage
Advisory Group formerly included in the Companys
Other segment, which is the only remaining operation
for this subsidiary. At December 31, 2006, FA Asset
Management Inc. is included in discontinued operations (see
Discontinued Operations Note).
Liquidity
and Net Capital
The Company has experienced recurring losses. Continuing losses
will impact the Companys liquidity and net capital.
Managements plans in this regard include increasing
revenue and reducing cash compensation and benefit costs by
restructuring incentive compensation. Based upon
managements plans, management believes it will have
adequate resources and regulatory capital to continue operations
for at least the next twelve months. However, there can be no
assurance that managements plans will be achieved and
accordingly continued losses could adversely affect the
Companys liquidity and net capital.
Use
of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Securities
Transactions
Commission income from customers securities transactions
and related clearing and compensation expenses are reported on a
trade date basis. Profit and loss arising from securities
transactions entered into for the account of the Company are
recorded on trade date and are included as revenues from
principal transactions. Unrealized gains and losses resulting
from valuing securities owned and sold, but not yet purchased at
market value or fair value as determined by management are also
included as revenues from principal transactions. Open equity in
futures is recorded at market value daily and the resultant
gains and losses are included as revenues from principal
transactions. Unrealized gains and losses resulting from valuing
investments at market value or fair value as determined by
management are also included as revenues from investment gains
(losses).
D-8
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Investment
Banking
Investment banking revenues include gains, losses and fees, net
of transaction related expenses, arising from securities
offerings in which the Company acts as an underwriter.
Investment banking management fees are recorded on offering
date, sales concessions on trade date, and underwriting fees at
the time the income is reasonably determinable. Investment
banking revenues also include fees earned from providing merger,
acquisition and financial advisory services and are recognized
as services are earned.
Resale
and Repurchase Agreements
Transactions involving purchases of securities under agreements
to resell or sales of securities under agreements to repurchase
are accounted for as collateralized financing transactions and
are recorded at their contracted resale or repurchase amounts
plus accrued interest. It is the policy of the Company to obtain
possession of collateral with a market value equal to or in
excess of the principal amount loaned under resale agreements.
Collateral is valued daily and the Company may require counter
parties to deposit additional collateral or return collateral
pledged when appropriate.
At December 31, 2006, the Company had entered into a number
of resale agreements with Mizuho Securities USA and First
Tennessee valued at $14.1 million. At December 31,
2005, resale agreements were valued at $27.8 million. For
both periods, the collateral held by the Company consists of
Government Bonds and was equal to the approximate principal
amount loaned to Mizuho Securities USA and First Tennessee.
These resale agreements may be cancelled or renewed on a daily
basis by either the Company or the counter party.
Securities-Borrowing
Activities
Securities borrowed are generally reported as collateralized
financings and are recorded at the amount of cash collateral
advanced. Securities borrowed transactions require the Company
to deposit cash, or other collateral with the lender. The
Company monitors the market value of securities borrowed on a
daily basis, with additional collateral obtained or refunded as
necessary. The Company no longer engages in securities lending
transactions.
Collateral
The Company receives collateral in connection with resale
agreements and securities borrowed transactions. Under many
agreements, the Company is permitted to sell or repledge these
securities held as collateral and use the securities to secure
repurchase agreements to deliver to counter parties to cover
short positions. The Company continues to report assets it has
pledged as collateral in secured borrowing transactions and
other arrangements when the secured party cannot sell or
repledge the assets and does not report assets received as
collateral in secured lending transactions and other
arrangements because the debtor typically has the right to
redeem the collateral on short notice.
Intangible
Assets
The Company amortizes customer related intangible assets over
their estimated useful life, which is the period over which the
assets are expected to contribute directly or indirectly to the
future cash flows of the Company. Goodwill is not amortized,
instead it is reviewed on an annual basis for impairment.
Goodwill is impaired when the carrying amount of the reporting
unit exceeds the implied fair value of the reporting unit. A
reporting unit is defined by the Company as an operating segment
or a component of an operating segment provided that the
component constitutes a business for which discrete financial
information is available and segment management regularly
reviews the operating results of that component. In addition to
annual testing, Goodwill is also tested for impairment at the
time of a triggering event requiring a re-evaluation, if one
were to occur.
D-9
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Drafts
Payable
The Company maintains a group of zero-balance bank
accounts which are included in payables to others on the
Statements of Financial Condition. The balances in the
zero-balance accounts represent outstanding checks
that have not yet been presented for payment at the bank. The
Company has sufficient funds on deposit to clear these checks,
and these funds will be transferred to the
zero-balance accounts upon presentment. The Company
maintains one zero-balance account which is used as
a cash management technique, permitted under
Rule 15c3-3
of the Securities and Exchange Commission, to obtain federal
funds for a fee, which is lower than prevailing interest rates,
in amounts equivalent to amounts in customers segregated
funds accounts with a bank (see Cash and Securities
Segregated Under Federal Regulations note).
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.
Comprehensive
Income
The Company has no components of other comprehensive income;
therefore, comprehensive income equals net income.
Derivative
Financial Instruments
The Company does not engage in the proprietary trading of
derivative securities with the exception of highly liquid
treasury and municipal index futures contracts and options.
These index futures contracts and options are used primarily as
fair value hedges against securities positions in the
Companys securities owned. Futures contracts are executed
on an exchange, and cash settlement is made on a daily basis for
market movements. Gains and losses on these financial
instruments are included as revenues from principal transactions.
Fair
Value of Financial Instruments
The financial instruments of the Company are reported on the
Statements of Financial Condition at market or fair value, or at
carrying amounts that approximate fair values, because of the
short maturity of the instruments, except subordinated debt. The
estimated fair value of subordinated debt at December 31,
2006, approximates its carrying value based on current rates
available (see Subordinate Debt note).
Office
Equipment and Leasehold Improvements
Office equipment and leasehold improvements are stated at cost
less accumulated depreciation of $26.7 million at
December 31, 2006 and $24.8 million at
December 31, 2005. Depreciation is provided on a
straight-line basis over the shorter of the estimated useful
life of the asset (2 to 5 years) or the initial term of the
lease. Depreciation expense for the years ended
December 31, 2006, 2005 and 2004 was $2.3 million,
$3.6 million and $2.6 million, respectively.
Securities
Issued for Services
The Company adopted the recognition provisions of FAS 123
effective January 1, 2003 using the prospective method of
transition described in FAS 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. Under
the fair value recognition provisions of FAS 123 and
FAS 148, stock-based compensation cost as it relates to
options is measured at the grant date based on the Black-Scholes
value of the award and is recognized as expense over the vesting
period on a straightline basis for awards granted after
December 31, 2002. For options granted prior to
December 31, 2002, the fair value of options granted was
not required to be recognized as an
D-10
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
expense in the Consolidated Financial Statements. Compensation
expense for restricted stock awards is recorded for the fair
market value of the stock issued. In the event that recipients
are required to render future services to obtain full rights in
the securities received, the compensation expense is deferred
and amortized as a charge to income over the period that such
rights vest to the recipient.
Effective January 1, 2006, the Company adopted
FAS 123(R). In adopting FAS 123(R), the Company
applied the modified prospective application transition method.
Under the modified prospective application method, prior period
financial statements are not adjusted. Instead, the Company will
apply FAS 123(R) for new awards granted after
December 31, 2005, any portion of awards that were granted
after January 1, 1995 and have not vested by
January 1, 2006 and any outstanding liability awards. The
impact of applying the nominal vesting period approach for
awards with vesting upon retirement eligibility and the
non-substantive approach was immaterial. Upon adoption of
FAS 123(R) on January 1, 2006, the Company recognized
an after-tax gain of approximately $0.4 million as the
cumulative effect of a change in accounting principle, primarily
attributable to the requirement to estimate forfeitures at the
date of grant instead of as incurred. The estimated forfeiture
rate for 2006 was 25% (see Benefit Plans note).
Legal
Fees
The Company accrues legal fees as they are incurred.
Income
Taxes
Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates
applicable for future years to differences between the financial
statement basis and tax basis of existing assets and
liabilities. The effect of tax rate changes on deferred taxes is
recognized in the income tax provision in the period that
includes the enactment date.
Reclassification
Certain 2005 and 2004 amounts on the Consolidated Statements of
Operations have been reclassified to conform to the 2006
presentation due to the Company discontinuing its Taxable Fixed
Income corporate bond division and its Institutional Convertible
Bond Arbitrage Advisory Group subsidiary (see Discontinued
Operations note). Certain amounts in the Consolidated
Statements of Cash Flows have been reclassified related to
deferred compensation, $0.6 million and $0.2 million
were reclassified in 2005 and 2004, respectively, to deferred
compensation, from services provided in exchange for common
stock.
Earnings
per Common Share
The Company calculates its basic and diluted earnings per shares
in accordance with Statement of Financial Accounting Standards
No. 128, Earnings per share. Basic earnings per share are
computed based upon weighted-average shares outstanding.
Dilutive earnings per share is computed consistently with basic
while giving effect to all dilutive potential common shares that
were outstanding during the period. The Company uses the
treasury stock method to reflect the potential dilutive effect
of unvested stock awards, warrants, unexercised options and any
contingently issued shares (see Temporary Capital
note). The weighted-average shares outstanding were calculated
as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands of shares)
|
|
|
Weighted average shares for basic
earnings per share
|
|
|
15,155
|
|
|
|
13,824
|
|
|
|
12,528
|
|
Effect of dilutive common
equivalent shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares and
dilutive common equivalent shares for dilutive earnings per share
|
|
|
15,155
|
|
|
|
13,824
|
|
|
|
12,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D-11
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company excluded approximately 0.3 million,
0.9 million, and 1.1 million common equivalent shares
in 2006, 2005, and 2004 respectively, in its computation of
dilutive earnings per share because they were anti-dilutive. In
addition, at December 31, 2006, approximately
1.8 million shares of restricted stock awards, (see
Benefit Plans note) which are included in shares
outstanding, are not included in the basic earnings per share
computation because they are not vested as of December 31,
2006.
|
|
NOTE 2.
|
Cash and
Securities Segregated under Federal Regulations
|
At December 31, 2006 and 2005, the Company segregated cash
of $5.2 million and $7.1 million respectively, in a
special reserve bank account for the benefit of customers under
Rule 15c3-3
of the Securities and Exchange Commission.
|
|
NOTE 3.
|
Receivables
From and Payables To Brokers, Dealers, and Clearing
Agencies
|
Amounts receivable from and payable to brokers, dealers and
clearing agencies consists of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands of dollars)
|
|
|
Adjustment to record securities
owned on a trade date basis, net
|
|
$
|
|
|
|
$
|
23,190
|
|
Securities borrowed
|
|
|
455
|
|
|
|
179
|
|
Commissions receivable
|
|
|
2,146
|
|
|
|
2,928
|
|
Securities failed to deliver
|
|
|
3,841
|
|
|
|
4,086
|
|
Good faith deposits
|
|
|
225
|
|
|
|
1,337
|
|
Receivable from clearing
organizations
|
|
|
3,959
|
|
|
|
4,501
|
|
|
|
|
|
|
|
|
|
|
Total receivables
|
|
$
|
10,626
|
|
|
$
|
36,221
|
|
|
|
|
|
|
|
|
|
|
Adjustment to record securities
owned on a trade date basis, net
|
|
$
|
2,173
|
|
|
$
|
|
|
Payable to clearing organizations
|
|
|
43,807
|
|
|
|
45,959
|
|
Securities failed to receive
|
|
|
3,085
|
|
|
|
4,636
|
|
|
|
|
|
|
|
|
|
|
Total payables
|
|
$
|
49,065
|
|
|
$
|
50,595
|
|
|
|
|
|
|
|
|
|
|
Proprietary securities transactions are recorded on a trade
date, as if they had settled. The related amounts receivable and
payable for unsettled securities transactions are recorded net
in receivables or payables to brokers, dealers and clearing
agencies on the Statements of Financial Condition.
|
|
NOTE 4.
|
Receivables
From and Payables To Customers
|
At December 31, 2006, receivables from customers are mainly
comprised of the purchase of securities by institutional
clients. Delivery of these securities is made only when the
Company is in receipt of the funds from the institutional
clients.
The majority of the Companys non-institutional customers
securities transactions, including those of officers, directors,
employees and related individuals, are cleared through a third
party under a clearing agreement. Under this agreement, the
clearing agent executes and settles customer securities
transactions, collects margin receivables related to these
transactions, monitors the credit standing and required margin
levels related to these customers and, pursuant to margin
guidelines, requires the customer to deposit additional
collateral with them or to reduce positions, if necessary. In
the event the customer is unable to fulfill its contractual
obligations, the clearing agent may purchase or sell the
financial instrument underlying the contract, and as a result
may incur a loss.
D-12
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
If the clearing agent incurs a loss, it has the right to pass
the loss through to the Company which exposes the Company to
off-balance-sheet risk. The Company has retained the right to
pursue collection or performance from customers who do not
perform under their contractual obligations and monitors
customer balances on a daily basis along with the credit
standing of the clearing agent. As the potential amount of
losses during the term of this contract has no maximum, the
Company believes there is no maximum amount assignable to this
indemnification. At December 31, 2006, substantially all
customer obligations were fully collateralized and the Company
has not recorded a liability related to the clearing
agents right to pass losses through to the Company.
|
|
NOTE 5.
|
Securities
Owned and Sold, but Not Yet Purchased
|
Securities owned and sold, but not yet purchased consisted of
the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Sold, but
|
|
|
|
|
|
Sold, but
|
|
|
|
|
|
|
not yet
|
|
|
|
|
|
not yet
|
|
|
|
Owned
|
|
|
Purchased
|
|
|
Owned
|
|
|
Purchased
|
|
|
|
|
|
|
(In thousands of dollars)
|
|
|
|
|
|
Marketable Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
obligations
|
|
$
|
90,652
|
|
|
$
|
51,393
|
|
|
$
|
84,983
|
|
|
$
|
50,729
|
|
State and municipal bonds
|
|
|
139,811
|
|
|
|
26
|
|
|
|
124,388
|
|
|
|
128
|
|
Corporate obligations
|
|
|
31,146
|
|
|
|
84
|
|
|
|
41,954
|
|
|
|
760
|
|
Corporate stocks
|
|
|
12,989
|
|
|
|
456
|
|
|
|
11,542
|
|
|
|
828
|
|
Options
|
|
|
258
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
Not Readily Marketable Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities with no
publicly quoted market
|
|
|
1,008
|
|
|
|
|
|
|
|
909
|
|
|
|
|
|
Investment securities subject to
restrictions
|
|
|
303
|
|
|
|
|
|
|
|
2,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
276,167
|
|
|
$
|
52,120
|
|
|
$
|
265,794
|
|
|
$
|
52,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
The Companys investment portfolio includes interests in
publicly and privately held companies. Information regarding
these investments has been aggregated and is presented below as
of and for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands of dollars)
|
|
|
Carrying Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
|
|
$
|
|
|
|
$
|
40,375
|
|
|
$
|
19,970
|
|
Private
|
|
|
10,866
|
|
|
|
9,492
|
|
|
|
19,405
|
|
Consolidation of Employee
Investment Funds net of Companys ownership interest,
classified as Private Investment
|
|
|
1,384
|
|
|
|
2,630
|
|
|
|
5,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total carrying value
|
|
$
|
12,250
|
|
|
$
|
52,497
|
|
|
$
|
44,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D-13
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Investment gains and losses were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands of dollars)
|
|
|
Public (realized and unrealized
gains and losses)
|
|
$
|
(12,865
|
)
|
|
$
|
22,424
|
|
|
$
|
8,240
|
|
Private (realized gains and losses)
|
|
|
5,995
|
|
|
|
(830
|
)
|
|
|
66
|
|
Private (unrealized gains and
losses)
|
|
|
(732
|
)
|
|
|
(3
|
)
|
|
|
1,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment gains (losses)
|
|
$
|
(7,602
|
)
|
|
$
|
21,591
|
|
|
$
|
10,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
iRobot (IRBT) and Mechanical Technology Incorporated
(MKTY) accounted for the entire balance of public
investments owned by the Company as of December 31, 2005.
During the year ended December 31, 2006, the Company sold
its remaining 1,116,040 shares of Mechanical Technology
Incorporated (MKTY) for proceeds of approximately
$3.3 million. Also during the year ended December 31,
2006, the Company sold its remaining 1,116,290 shares of
iRobot (IRBT) for proceeds of approximately
$24.2 million.
Privately held investments include an investment of
$10.1 million in FA Technology Ventures L.P. (the
Partnership), which represented the Companys
maximum exposure to loss in the Partnership at December 31,
2006. The Partnerships primary purpose is to provide
investment returns consistent with the risk of investing in
venture capital. At December 31, 2006 total Partnership
capital for all investors in the Partnership equaled
$40.1 million. The Partnership is considered a variable
interest entity. The Company is not the primary beneficiary, due
to other investors level of investment in the Partnership.
Accordingly, the Company has not consolidated the Partnership in
these financial statements, but has recorded the value of its
investment. FA Technology Ventures Inc. (FATV), a
wholly-owned subsidiary, is the investment advisor for the
Partnership. Revenues derived from the management of this
investment and the Employee Investment Funds for the year ended
December 31, 2006 were $1.4 million in consolidation.
On May 23, 2006, FATV announced that one of the portfolio
companies of the Partnership was expected to be acquired by
Microsoft Corporation. The acquisition closed in July 2006. Also
in July 2006, another private investment held by the Company was
acquired by an outside firm. For the year ended
December 31, 2006, the $6.0 million net realized gain
for private investments was driven primarily by distributions of
the gains from these investments to the Company.
The Company has consolidated its Employee Investment Funds
(EIF). The EIF are limited liability companies, established by
the Company for the purpose of having select employees invest in
private equity placements. The EIF is managed by FAC Management
Corp., a wholly-owned subsidiary, which has contracted with FATV
to act as an investment advisor with respect to funds invested
in parallel with the Partnership. The Companys carrying
value of this EIF is $0.3 million excluding the effects of
consolidation. The Company has outstanding loans of
$0.4 million to the EIF and is also committed to loan an
additional $0.2 million to the EIF. The effect of
consolidation was to increase Investments by $1.4 million,
decrease Receivable from Others by $0.4 million and
increase Payable to Others by $1.0 million. The amounts in
Payable to Others relates to the value of the EIF owned by
employees.
D-14
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 7.
|
Intangible
Assets
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands of dollars)
|
|
|
Intangible assets
|
|
|
|
|
|
|
|
|
Customer related (amortizable):
|
|
|
|
|
|
|
|
|
Descap Securities,
Inc. Acquisition
|
|
$
|
641
|
|
|
$
|
641
|
|
Accumulated amortization
|
|
|
(143
|
)
|
|
|
(89
|
)
|
Institutional convertible bond
|
|
|
|
|
|
|
|
|
arbitrage advisory
group Acquisition
|
|
|
1,017
|
|
|
|
1,017
|
|
Accumulated amortization
|
|
|
(382
|
)
|
|
|
(306
|
)
|
Impairment loss
|
|
|
(635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
498
|
|
|
|
1,263
|
|
|
|
|
|
|
|
|
|
|
Goodwill (unamortizable):
|
|
|
|
|
|
|
|
|
Descap Securities,
Inc. Acquisition
|
|
|
25,250
|
|
|
|
23,763
|
|
Impairment loss
|
|
|
(7,886
|
)
|
|
|
|
|
Institutional convertible bond
|
|
|
|
|
|
|
|
|
arbitrage advisory
group Acquisition
|
|
|
964
|
|
|
|
964
|
|
Impairment loss
|
|
|
(964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,364
|
|
|
|
24,727
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets
|
|
$
|
17,862
|
|
|
$
|
25,990
|
|
|
|
|
|
|
|
|
|
|
The carrying amount of goodwill for the Descap Securities,
Inc. Acquisition increased by $1.5 million
during the year ended December 31, 2006, related primarily
to additional consideration pursuant to the acquisition
agreement (see Commitments and Contingencies note).
As a result of annual impairment testing, the goodwill related
to the acquisition of Descap was determined to be impaired. Fair
value of the Descap reporting unit was determined using both the
income and market approaches. The income approach determines
fair value using a discounted cash flow analysis based on
managements projections. The market approach analyzes and
compares the operations performance and financial conditions of
the reporting unit with those of a group of selected
publicly-traded companies that can be used for comparison. The
valuation gives equal weight to the two approaches to arrive at
the fair value of the reporting unit. As a result of the
valuation, as of December 31, 2006, the carrying value of
goodwill was greater than the implied value of goodwill
resulting in a goodwill impairment loss of $7.9 million
recognized in the caption Impairment on the
Statements of Operations.
A plan approved by the Board of Directors on September 28,
2006 to discontinue operations of the Institutional Convertible
Bond Arbitrage Advisory Group (the Group) triggered
an impairment test in the third quarter of 2006 in accordance
with SFAS No. 142 Goodwill and Other Intangible
Assets. Fair value of the Group was determined using the
income approach. The income approach determines fair value using
a discounted cash flow analysis based on managements
projections. Based on the impairment test, a goodwill impairment
loss of $1.0 was recognized in discontinued operations for the
year ended December 31, 2006. As a result of impairment
testing of the disposal group in accordance with
SFAS No. 144 Accounting for the Impairment or
Disposal of Long-Lived Assets, it was determined that
amortizable customer related intangibles were also impaired. An
impairment loss of $0.6 million was recognized related to
amortizable intangible assets in discontinued operations for the
year ended December 31, 2006.
D-15
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Customer related intangible assets are being amortized over
12 years. Amortization expense for the customer related
intangible assets, including the impairment, for the years ended
December 31, 2006, 2005, and 2004 was $0.8 million,
$0.1 million, and $0.2 million, respectively. Future
amortization expense is estimated as follows:
|
|
|
|
|
|
Estimated Amortization Expense
(Year Ended December 31)
|
|
|
|
|
2007
|
|
$
|
53
|
|
2008
|
|
|
53
|
|
2009
|
|
|
53
|
|
2010
|
|
|
53
|
|
2011
|
|
|
53
|
|
Thereafter
|
|
|
233
|
|
|
|
|
|
|
Total
|
|
$
|
498
|
|
|
|
|
|
|
NOTE 8. Short-Term
Bank Loans and Notes Payables
Short-term bank loans are made under a variety of bank lines of
credit totaling $210 million of which approximately
$129 million is outstanding at December 31, 2006.
These bank lines of credit consist of credit lines that the
Company has been advised are available solely for financing
securities inventory but for which no contractual lending
obligation exist and are repayable on demand. These loans are
collateralized by eligible securities, including Company-owned
securities, subject to certain regulatory formulas. Typically,
these lines of credit will allow the Company to borrow up to 85%
to 90% of the market value of the collateral. These loans bear
interest at variable rates based primarily on the Federal Funds
interest rate. The weighted average interest rates on these
loans were 5.74% and 4.68% at December 31, 2006 and 2005
respectively. At December 31, 2006, short-term bank loans
were collateralized by Company-owned securities, which are
classified as securities owned, of $145 million.
The Companys notes payable includes a $12.7 million
Term Loan to finance the acquisition of Descap Securities, Inc.
Interest rate is 2.4% over the
30-day
London InterBank Offered Rate (LIBOR) (5.33% at
December 31, 2006). Interest only was payable for the first
six months, and thereafter monthly payments of $238 in principal
and interest over the life of the loan which matures on
May 14, 2011. The Term Loan agreement contains various
covenants, as defined in the agreement. On April 22, 2005,
the lender agreed to waive the financial covenants contained in
the term loan agreement for the quarter ended March 31,
2005. On August 9, 2005, the lender agreed to amend the
loan document, effective June 30, 2005. The lender agreed
to eliminate the EBITDAR requirement of $22.5 million,
amend the definition for operating cash flow, fixed charges,
EBITDAR and modified indebtedness. The lender also agreed to
increase the maximum allowable modified total funded
indebtedness to EBITDAR ratio from 1.75 to 2.00 through
March 31, 2006. Thereafter the revised ratio requires that
the Companys modified total funded debt to EBITDAR not to
exceed 1.75 to 1 (for the twelve month period ending
December 31, 2006, modified total funded indebtedness
EBITDAR ratio was 0.51 to 1). In addition, the modified Term
Loan agreement requires operating cash flow to total fixed
charges (as defined) to be not less than 1.15 to 1 (for the
twelve month period ending December 31, 2006, the operating
cash flow to total fixed charge ratio was 2.15 to
1) EBITDAR is defined as earnings before interest, taxes,
depreciation, amortization and lease expense plus pro forma
adjustments. The definition of operating cash flow includes the
payment of cash dividends; therefore, the Companys ability
to pay cash dividends in the future may be impacted by the
covenant.
D-16
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Principal payments for the Term Note are due as follows:
|
|
|
|
|
|
|
(In thousands of
|
|
|
|
dollars)
|
|
|
2007
|
|
$
|
2,857
|
|
2008
|
|
|
2,857
|
|
2009
|
|
|
2,857
|
|
2010
|
|
|
2,857
|
|
2011
|
|
|
1,239
|
|
|
|
|
|
|
Total principal payments remaining
|
|
$
|
12,667
|
|
|
|
|
|
|
In March 2006, our $10 million Senior Note, dated
June 13, 2003, which was set to mature on June 30,
2010, was repaid in full. In May 2006, principal payments of
$4.9 million and $8.7 million were made to pay off the
Companys $4.9 million Term Loan and $11 million
Term Loan, respectively.
|
|
NOTE 9.
|
Obligations
Under Capitalized Leases
|
The following is a schedule of future minimum lease payments
under capital leases for office equipment together with the
present value of the net minimum lease payments at
December 31, 2006:
|
|
|
|
|
|
|
(In thousands of
|
|
|
|
dollars)
|
|
|
2007
|
|
$
|
1,599
|
|
2008
|
|
|
999
|
|
2009
|
|
|
676
|
|
2010
|
|
|
460
|
|
2011
|
|
|
213
|
|
2012
|
|
|
11
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
3,958
|
|
Less: amount representing interest
|
|
|
436
|
|
|
|
|
|
|
Present value of minimum lease
payments
|
|
$
|
3,522
|
|
|
|
|
|
|
|
|
NOTE 10.
|
Payables
To Others
|
Amounts payable to others consisted of the following at December
31:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands of dollars)
|
|
|
Draft payables
|
|
$
|
5,942
|
|
|
$
|
9,963
|
|
Net Payable to Employees for the
Employee Investment
|
|
|
|
|
|
|
|
|
Fund (see Investments
note)
|
|
|
1,039
|
|
|
|
1,371
|
|
Payable to Sellers of Descap
Securities, Inc. (see Commitments and Contingencies
footnote)
|
|
|
1,036
|
|
|
|
|
|
Others
|
|
|
979
|
|
|
|
2,765
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,996
|
|
|
$
|
14,099
|
|
|
|
|
|
|
|
|
|
|
The Company maintains a group of zero-balance bank
accounts which are included in payables to others on the
Statements of Financial Condition. Drafts payable represent the
balances in these accounts related to
D-17
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
outstanding checks that have not yet been presented for payment
at the bank. The Company has sufficient funds on deposit to
clear these checks, and these funds will be transferred to the
zero-balance accounts upon presentment. The Company
maintains one zero-balance account which is used as
a cash management technique, permitted under
Rule 15c3-3
of the Securities and Exchange Commission, to obtain federal
funds for a fee, which is lower than prevailing interest rates,
in amounts equivalent to amounts in customers segregated
funds accounts with a bank (see Cash and Securities
Segregated Under Federal Regulations note).
|
|
NOTE 11.
|
Subordinated
Debt
|
A select group of management and highly compensated employees
are eligible to participate in the First Albany Companies Inc.
Deferred Compensation Plan for Key Employees (the
Plan). The employees enter into subordinate loans
with the Company to provide for the deferral of compensation and
employer allocations under the Plan. The New York Stock Exchange
has approved the Companys subordinated debt agreements
related to the Plan. Pursuant to these approvals, these amounts
are allowable in the Companys computation of net capital.
The accounts of the participants of the Plan are credited with
earnings
and/or
losses based on the performance of various investment benchmarks
selected by the participants. Maturities of the subordinated
debt are based on the distribution election made by each
participant, which may be deferred to a later date by the
participant. As of February 28, 2007, the Company no longer
permits any new amounts to be deferred under this Plan.
Principal debt repayment requirements, which occur on about
April 15th of
each year, as of December 31, 2006, are as follows:
|
|
|
|
|
|
|
(In thousands of
|
|
|
|
dollars)
|
|
|
2007
|
|
$
|
1,462
|
|
2008
|
|
|
1,299
|
|
2009
|
|
|
465
|
|
2010
|
|
|
287
|
|
2011 to 2016
|
|
|
911
|
|
|
|
|
|
|
Total
|
|
$
|
4,424
|
|
|
|
|
|
|
|
|
NOTE 12.
|
Commitments
and Contingencies
|
Commitments: As of December 31,
2006, the Company had a commitment to invest up to an additional
$3.8 million in FA Technology Ventures, LP (the
Partnership). The investment period expired in July
2006, however, the General Partner may continue to make capital
calls up through July 2011 for additional investments in
portfolio companies and for the payment of management fees. The
Company intends to fund this commitment from operating cash
flow. The Partnerships primary purpose is to provide
investment returns consistent with risks of investing in venture
capital. In addition to the Company, certain other limited
partners of the Partnership are officers or directors of the
Company. The majority of the commitments to the Partnership are
from non-affiliates of the Company.
The General Partner for the Partnership is FATV GP LLC. The
General Partner is responsible for the management of the
Partnership, including among other things, making investments
for the Partnership. The members of the General Partnership are
George McNamee, Chairman of the Company, First Albany Enterprise
Funding, Inc., a wholly owned subsidiary of the Company, and
other employees of the Company or its subsidiaries.
Mr. McNamee is required under the Partnership agreement to
devote a majority of his business time to the conduct of the
affairs of the Partnership and any parallel funds. Subject to
the terms of the Partnership agreement, under certain
conditions, the General Partnership is entitled to share in the
gains received by the Partnership in respect of its investment
in a portfolio company. The General Partner will receive a
carried interest on customary terms. The General Partner has
contracted with FATV to act as investment advisor to the General
Partner.
D-18
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2006, the Company had an additional
commitment to invest up to $0.3 million in funds that
invest in parallel with the Partnership, which it intends to
fund, at least in part, through current and future Employee
Investment Funds (EIF). The investment period expired in July
2006, but the General Partner may continue to make capital calls
up through July 2011 for additional investments in portfolio
companies and for the payment of management fees. The Company
anticipates that the portion of the commitment that is not
funded by employees through the EIF will be funded by the
Company through operating cash flow.
As of December 31, 2006, the Company has guaranteed
compensation payments of $12.6 million payable over the
next four years related to various compensation arrangements
with its employees.
Contingent Consideration: On
May 14, 2004, the Company acquired 100 percent of the
outstanding common shares of Descap, a New York-based
broker-dealer and investment bank. Per the acquisition
agreement, the Sellers can receive future contingent
consideration (Earnout Payment) based on the
following: for each of the years ending May 31, 2005
through May 31, 2007, if Descaps Pre-Tax Net Income
(as defined) (i) is greater than $10 million, the
Company shall pay to the Sellers an aggregate amount equal to
fifty percent (50%) of Descaps Pre-Tax Net Income for such
period, or (ii) is equal to or less than $10 million,
the Company shall pay to the Sellers an aggregate amount equal
to forty percent (40%) of Descaps Pre-Tax Net Income for
such period. Each Earnout Payment shall be paid in cash,
provided that the Buyer shall have the right to pay up to
seventy-five percent (75%) of each Earnout Payment in the form
of shares of Company Stock. The amount of any Earnout Payment
that the Company elects to pay in the form of Company Stock
shall not exceed $3.0 million for any Earnout Period and in
no event shall such amounts exceed $6.0 million in the
aggregate for all Earnout Payments. Based upon Descaps
Pre-Tax Net Income from June 1, 2005 through May 31,
2006, $1.0 million of contingent consideration has been
accrued at December 31, 2006. Also, based upon
Descaps pre-tax net income from June 1, 2006 to
December 31, 2006, no contingent consideration would be
payable to the Sellers.
Leases: The Companys headquarters
and sales offices, and certain office and communication
equipment, are leased under non-cancelable operating leases,
certain of which contain renewal options and escalation clauses,
and which expire at various times through 2015. To the extent
the Company is provided tenant improvement allowances funded by
the lessor, they are amortized over the initial lease period and
serve to reduce rent expense. To the extent the Company is
provided free rent periods, the Company recognizes the rent
expense over the entire lease term on a straightline basis.
In April 2006, the Company entered into a Surrender Agreement
with its landlord related to a lease it had signed in 2005, for
new office space in New York City. The Company was a tenant
under a sublease dated April 6, 2005, for space located at
1301 Avenue of the Americas, New York, New York
(Premises). On April 28, 2006, the Company
entered into transactions with various parties under which the
Company surrendered the Premises and was released from future
liability. As a result of the transactions, the Company was
released from further liability for rent and other tenant
expenses relating to the Premises, was reimbursed approximately
$5.0 million for construction costs and cancelled
approximately $1.9 million of letters of credit it had
issued as security. The financial impact of this transaction was
immaterial to the Statements of Operations.
Also, on September 29, 2006, the Company entered into a
Third Amendment to Sub-Lease Agreement (the
Amendment), amending a Sub-Lease Agreement dated
August 12, 2003, as previously amended, by and between the
Company and Columbia 677, L.L.C. (Columbia), a New
York limited liability company, for the lease of certain
property located at 677 Broadway, Albany, New York (the
Sublease). Pursuant thereto and on certain
conditions specified therein, the Company surrendered
15,358 square feet of space (the Surrender
Premises) with respect to which Columbia agreed to release
the Company from its lease obligations under the Sublease. Under
the terms of the Amendment, the Company vacated a portion of the
Surrender Premises on October 9, 2006 and vacated the
remainder on October 16, 2006, subject to certain
conditions. The Company continues to sublease and occupy
32,698 square feet of space under the Sublease. Due to the
surrender of the space the Company incurred a loss of
$0.8 million due mainly to a surrender fee the Company will
pay to Columbia. The surrender fee is payable to Columbia in
three installments as follows: two installments of
$0.2 million were paid on November 1, 2006 and
D-19
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
January 1, 2007, and a third payment of $0.4 is due on
April 1, 2007, all of which constitutes additional rent
under the Sublease. As part of the Companys surrender of
the space, the Company accelerated $0.2 million of
depreciation expense related to the abandoned leasehold
improvements.
In September 2006, the Company entered into an agreement to
sublease 1,950 square feet of office space at the
Companys Boston location. Under the terms of the sublease
agreement, the subtenant will pay the Company a total of
$0.7 million over the term of the sublease.
In October 2006, the Company consolidated their 444 Madison
Avenue offices with their offices at 1 Penn Plaza in New York
City and incurred an impairment loss of $0.5 million which
was net of projected sublease income.
Future minimum annual lease payments, and sublease rental
income, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Minimum
|
|
|
Sublease Rental
|
|
|
Net Lease
|
|
|
|
Lease Payments
|
|
|
Income
|
|
|
Payments
|
|
|
|
(In thousands of dollars)
|
|
|
2007
|
|
$
|
7,594
|
|
|
$
|
1,126
|
|
|
$
|
6,468
|
|
2008
|
|
|
6,022
|
|
|
|
809
|
|
|
|
5,213
|
|
2009
|
|
|
2,822
|
|
|
|
100
|
|
|
|
2,722
|
|
2010
|
|
|
2,438
|
|
|
|
100
|
|
|
|
2,338
|
|
2011
|
|
|
2,366
|
|
|
|
100
|
|
|
|
2,266
|
|
Thereafter
|
|
|
6,607
|
|
|
|
191
|
|
|
|
6,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27,849
|
|
|
$
|
2,426
|
|
|
$
|
25,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual rental expense, net of sublease rental income, for the
years ended December 31, 2006, 2005 and 2004 approximated
$4.8 million, $7.2 million, and $5.6 million,
respectively.
In 2005, rent expense increased, compared to 2004, due to the
Companys real estate strategy in New York City and
San Francisco. While in 2006, rental expense decreased due
to the reversal of rent accruals relating to the surrender of
the Companys 1301 Avenue of the Americas lease.
Litigation
In 1998, the Company was named in lawsuits by Lawrence Group,
Inc. and certain related entities (the Lawrence
Parties) in connection with a private sale of Mechanical
Technology Inc. stock from the Lawrence Parties that was
previously approved by the United States Bankruptcy Court for
the Northern District of New York (the Bankruptcy
Court). The Company acted as placement agent in that sale,
and a number of employees and officers of the Company, who have
also been named as defendants, purchased shares in the sale. The
complaints alleged that the defendants did not disclose certain
information to the sellers and that the price approved by the
court was therefore not proper. The cases were initially filed
in the Bankruptcy Court and the United States District Court for
the Northern District of New York (the District
Court), and were subsequently consolidated in the District
Court. The District Court dismissed the cases, and that decision
was subsequently vacated by the United States Court of Appeals
for the Second Circuit, which remanded the cases for
consideration of the plaintiffs claims as motions to
modify the Bankruptcy Court sale order. The plaintiffs
claims have now been referred back to the Bankruptcy Court for
such consideration. Discovery is currently underway. The Company
believes that it has strong defenses to and intends to
vigorously defend itself against the plaintiffs claims,
and believes that the claims lack merit. However, an unfavorable
resolution could have a material adverse effect on the
Companys financial position, results of operations and
cash flows in the period resolved.
The Companys wholly owned subsidiary Descap Securities
Inc. (Descap) acted as the seller in a series of
purchases by a large institutional customer of collateralized
mortgage securities (the Bonds) from April through
June 2006. In these transactions, Descap acted as riskless
principal, insofar as it purchased the Bonds from a third
D-20
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
party and immediately resold them to the customer. The customer
who purchased the Bonds has claimed that Descap misled the
customer through misrepresentations and omissions concerning
certain fundamental elements of the Bonds and that the customer
would not have purchased the Bonds had it not been misled by
Descap. By letter of September 14, 2006, the customer has
claimed that the Company and Descap are liable to the customer
for damages in an amount in excess of $21 million and has
threatened litigation if the dispute is not resolved. The
Company and Descap have denied that Descap is responsible for
the customers damages and intend to defend vigorously any
litigation that the customer may commence. The Company and
Descap are in discussions with the customer in an attempt to
resolve the dispute. The outcome of this dispute is highly
uncertain, however, and an unfavorable resolution could have a
material adverse effect on the Companys financial
position, results of operations and cash flows in the period
resolved.
In connection with the termination of Arthur Murphys
employment by First Albany Capital as Executive Managing
Director, Mr. Murphy, also a former member of the Board of
Directors of the Company, filed an arbitration claim against
First Albany Capital, Alan Goldberg, former President and Chief
Executive Officer, and George McNamee, Chairman of First Albany
Companies Inc. with the National Association of Securities
Dealers on June 24, 2005. The claim alleged damages in the
amount of $8 million based on his assertions that he was
fraudulently induced to remain in the employ of First Albany
Capital. Without admitting or denying any wrongdoing or
liability, on December 28, 2006, First Albany Capital
entered into a settlement agreement with Arthur Murphy in
connection with such arbitration claim.
In the normal course of business, the Company has been named a
defendant, or otherwise has possible exposure, in several
claims. Certain of these are class actions, which seek
unspecified damages that could be substantial. Although there
can be no assurance as to the eventual outcome of litigation in
which the Company has been named as a defendant or otherwise has
possible exposure, the Company has provided for those actions
most likely of adverse disposition. Although further losses are
possible, the opinion of management, based upon the advice of
its attorneys, is that such litigation will not, in the
aggregate, have a material adverse effect on the Companys
liquidity, financial position or cash flow, although it could
have a material effect on quarterly or annual operating results
in the period in which it is resolved.
In the ordinary course of business, the Company is called upon
from time to time to answer inquiries and subpoenas on a number
of different issues by self-regulatory organizations, the SEC
and various state securities regulators. In recent years, there
has been an increased incidence of regulatory enforcement in the
United States involving organizations in the financial services
industry, and the Company is no exception. We are not always
aware of the subject matter of the particular inquiry or the
ongoing status of a particular inquiry. As a result of some of
these inquiries, the Company has been cited for technical
operational deficiencies. Although there can be no assurance as
to the eventual outcome of these proceedings, none of these
inquiries has to date had a material effect upon the business or
operations of the Company.
Collateral
The fair value of securities received as collateral, where the
Company is permitted to sell or repledge the securities
consisted of the following as of December 31:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands of dollars)
|
|
|
Securities purchased under
agreements to resell
|
|
$
|
13,990
|
|
|
$
|
27,804
|
|
Securities borrowed
|
|
|
442
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,432
|
|
|
$
|
27,981
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006, no collateral had been sold or
repledged.
D-21
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Letters
of Credit
The Company is contingently liable under bank stand-by letter of
credit agreements, executed in connection with office leases,
totaling $0.2 million at December 31, 2006. The letter
of credit agreements were collateralized by Company securities
with a market value of $0.2 million at December 31,
2006.
The Company enters into underwriting commitments to purchase
securities as part of its investment banking business. Also, the
Company may purchase and sell securities on a when-issued basis.
As of December 31, 2006, the Company had $0.4 million
in outstanding underwriting commitments and had purchased
$7.0 million and sold $14.5 million securities on a
when-issued basis.
|
|
NOTE 13.
|
Temporary
Capital
|
In connection with the Companys acquisition of Descap
Securities, Inc., the Company issued 549,476 shares of
stock which provides the Sellers the right to require the
Company to purchase back the shares issued, at a price of $6.14
per share. Accordingly, the Company has recognized as temporary
capital the amount that it may be required to pay under the
agreement. If the put is not exercised by the time it expires,
the Company will reclassify the temporary capital to
stockholders equity. The Company also has the right to
purchase back these shares from the Sellers at a price of
$14.46. The put and call rights expire on May 31, 2007. In
June 2006, certain of the sellers of Descap Securities, Inc.
exercised their put rights and the Company purchased
532,484 shares at $6.14 per share for a total amount of
$3.3 million.
|
|
NOTE 14.
|
Stockholders
Equity
|
Dividends
In February 2005, the Board of Directors declared a quarterly
cash dividend of $0.05 per share payable on March 10, 2005,
to shareholders of record on February 24, 2005. In May
2005, the Board of Directors suspended the $0.05 per share
dividend.
Acquisition
Descap Securities, Inc.
The shares issued to the sellers of Descap provide the sellers
the right to require the Company to purchase back these shares
at a price of $6.14 per share. The Company also has the right to
purchase back these shares from the sellers at a price of
$14.46. Both the put and call rights expire on May 31,
2007. The value assigned to the shares of common stock issued
($10.39 per share) approximated the market value of the stock on
the date Descap was acquired ($10.30 per share). The difference
in the value assigned and the market value was due to the put
and call features attached to the stock. In June 2006, certain
of the sellers of Descap Securities, Inc. exercised their put
rights and the Company purchased 532,484 shares at $6.14
per share for a total amount of $3.3 million.
Rights
Plan
On March 27, 1998, the Board of Directors adopted a
Shareholder Rights Plan. The rights were distributed as a
dividend of one right for each share of First Albany Companies
Inc. common stock outstanding, with a record date of
March 30, 1998. The Shareholder Rights Plan is intended to
deter coercive takeover tactics and strengthen the
Companys ability to deal with an unsolicited takeover
proposal.
The rights will expire on March 30, 2008. Each right will
entitle the holder to buy one one-hundredth of a newly issued
share of preferred stock at an exercise price of $56.00. The
rights will become exercisable at such time as any person or
group acquires more than 15% of the outstanding shares of common
stock of the Company (subject to certain exceptions) or within
10 days following the commencement of a tender offer that
will result in any person or group owning such percentage of the
outstanding voting shares.
D-22
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Upon any person or group acquiring 15% of the outstanding shares
of voting stock, each right will entitle its holders to buy
shares of First Albany Companies Inc. common stock (or of the
stock of the acquiring company if it is the surviving entity in
a business combination) having a market value equal to twice the
exercise price of each right. The rights will be redeemable at
any time prior to their becoming exercisable.
Treasury
Stock
In December 2003, the Board of Directors authorized a stock
repurchase program, which expired June 9, 2005.
Warrants
In 2003, the Company issued a Senior Note dated June 13,
2003 for $10 million with a fixed interest rate of 8.5%,
payable semiannually and maturing on June 30, 2010. There
were 437,000 warrants issued to the purchasers of the Senior
Note, which are exercisable between $10.08 and $11.54 per share
through June 13, 2010. The Senior Note was paid in full in
March 2006, while the warrants are still outstanding.
Deferred
Compensation and Employee Stock Trust
The Company has adopted or may hereafter adopt various
nonqualified deferred compensation plans (the Plans)
for the benefit of a select group of highly compensated
employees who contribute significantly to the continued growth
and development and future business success of the Company. Plan
participants may elect under the Plans to have the value of
their Plans Accounts track the performance of one or more
investment benchmarks available under the Plans, including First
Albany Companies Common Stock Investment Benchmark, which tracks
the performance of First Albany Companies Inc. common stock
(Company Stock). With respect to the First Albany
Companies Common Stock Investment Benchmark, the Company
contributes Company Stock to a rabbi trust (the
Trust) it has established in connection with meeting
its related liability under the Plans. As of February 28,
2007, the Company no longer permits any new amounts to be
deferred under its current Plans.
Assets of the Trust have been consolidated with those of the
Company. The value of the Companys stock at the time
contributed to the Trust has been classified in
stockholders equity and generally accounted for in a
manner similar to treasury stock.
The deferred compensation arrangement requires the related
liability to be settled by delivery of a fixed number of shares
of Company stock. Accordingly, the related liability is
classified in equity under deferred compensation and changes in
the fair market value of the amount owed to the participant in
the Plan is not recognized.
Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates
applicable for future years to differences between the financial
statement basis and tax basis of existing assets and
liabilities. The effect of tax rate changes on deferred taxes is
recognized in the income tax provision in the period that
includes the enactment date.
The income tax provision was allocated as follows for the year
ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands of dollars)
|
|
|
Loss from continuing operation
|
|
$
|
153
|
|
|
$
|
8,481
|
|
|
$
|
(9,571
|
)
|
Loss from discontinued operations
|
|
|
(22
|
)
|
|
|
(249
|
)
|
|
|
1,804
|
|
Stockholders equity
(additional paid-in capital)
|
|
|
|
|
|
|
(213
|
)
|
|
|
(2,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision
(benefit)
|
|
$
|
131
|
|
|
$
|
8,019
|
|
|
$
|
(10,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D-23
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company did not report a benefit for federal and state
income taxes in the 2006 financial statements because the
benefit of the loss has been offset by the maintenance of a full
valuation allowance. In 2006, the Company did book income tax
expense for continuing operations related to a provision for
federal alternative minimum tax (AMT) and taxable
income in certain states. The AMT tax for continuing operations
was partially offset by an income tax benefit for discontinued
operations.
The components of income taxes attributable to loss from
continuing operations, net of valuation allowance, consisted of
the following for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands of dollars)
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
110
|
|
|
$
|
51
|
|
|
$
|
(1,498
|
)
|
Deferred (including tax benefit
from operating loss carryforwards of $0.0 million,
$0.0 million and $1.5 million)
|
|
|
|
|
|
|
6,496
|
|
|
|
(5,702
|
)
|
State and local
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
43
|
|
|
|
(123
|
)
|
|
|
(597
|
)
|
Deferred (including tax benefit
from operating loss carryforwards of $0.0 million,
$0.0 million and $1.5 million)
|
|
|
|
|
|
|
2,057
|
|
|
|
(1,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
153
|
|
|
$
|
8,481
|
|
|
$
|
(9,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The expected income tax expense (benefit) using the federal
statutory rate differs from income tax expense pertaining to
pretax loss from continuing operations as a result of the
following for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands of dollars)
|
|
|
Income taxes at federal statutory
rate @ 35%
|
|
$
|
(14,544
|
)
|
|
$
|
1,241
|
|
|
$
|
(5,273
|
)
|
Graduated tax rates
|
|
|
416
|
|
|
|
(35
|
)
|
|
|
150
|
|
State and local income taxes, net
of federal income taxes and state valuation allowance
|
|
|
43
|
|
|
|
1,277
|
|
|
|
(1,680
|
)
|
Meals and entertainment
|
|
|
165
|
|
|
|
206
|
|
|
|
262
|
|
Tax-exempt interest income, net
|
|
|
(494
|
)
|
|
|
(773
|
)
|
|
|
(1,320
|
)
|
Other compensation
|
|
|
396
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
|
2,682
|
|
|
|
|
|
|
|
|
|
Plug Power Inc. stock distribution
|
|
|
|
|
|
|
|
|
|
|
(1,830
|
)
|
Appreciated stock contribution
|
|
|
|
|
|
|
(123
|
)
|
|
|
|
|
Other, including reserve
adjustments
|
|
|
436
|
|
|
|
(72
|
)
|
|
|
120
|
|
Alternative minimum tax
|
|
|
110
|
|
|
|
|
|
|
|
|
|
Change in federal and foreign
valuation allowance
|
|
|
10,943
|
|
|
|
6,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
153
|
|
|
$
|
8,481
|
|
|
$
|
(9,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2004, the Company distributed approximately 2 million
shares of Plug Power Inc. as a special dividend to the
Companys shareholders. The Company realized an approximate
$2.2 million tax benefit (federal tax benefit of
$1.8 million and state tax benefit of $0.4 million)
due to a difference in the accounting and tax treatments of this
distribution.
D-24
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The temporary differences that give rise to significant portions
of deferred tax assets and liabilities consisted of the
following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands of dollars)
|
|
|
Securities held for investment
|
|
$
|
(209
|
)
|
|
$
|
(15,134
|
)
|
Fixed assets
|
|
|
1,540
|
|
|
|
152
|
|
Deferred compensation
|
|
|
8,700
|
|
|
|
10,736
|
|
Accrued liabilities
|
|
|
1,306
|
|
|
|
1,228
|
|
Deferred revenue
|
|
|
(442
|
)
|
|
|
|
|
Net operating loss carryforwards
|
|
|
9,885
|
|
|
|
11,917
|
|
Intangible assets
|
|
|
654
|
|
|
|
|
|
Other
|
|
|
332
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax asset
before valuation allowance
|
|
|
21,766
|
|
|
|
9,233
|
|
Less valuation allowance
|
|
|
21,766
|
|
|
|
9,233
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The Company has recorded a valuation allowance at
December 31, 2006 and 2005, as a result of uncertainties
related to the realization of its net deferred tax asset. The
valuation allowance was established as a result of weighing all
positive and negative evidence, including the Companys
history of cumulative losses over the past three years and the
difficulty of forecasting future taxable income. The valuation
allowance reflects the conclusion of management that is more
likely than not that the benefit of the deferred tax assets will
not be realized. The Company recorded a net change in its
deferred tax valuation allowance in 2006 of $12.5 million.
At December 31, 2005, the Company recorded a valuation
allowance of approximately $9.2 million. The Company did
not record a valuation allowance for deferred tax assets at
December 31, 2004, since it determined that it was more
likely than not that deferred tax assets would be fully realized
through future taxable income.
At December 31, 2006, the Company had federal net operating
loss carryforwards of $24.4 million, which expire between
2023 and 2025. At December 31, 2006, the Company had state
operating loss carryforwards for tax purposes approximating
$19.6 million, which expire between 2009 and 2025.
The Company applies the with and without
intra-period tax allocation approach described in the Emerging
Issues Task Force (EITF) release Topic D-32 in determining the
order in which tax attributes are considered. Under this
approach a windfall benefit is recognized in additional paid-in
capital only if an incremental benefit is provided after
considering all other tax attributes presently available to the
Company. The Company measures windfall tax benefits considering
only the direct effects of the stock option deduction. In the
current year there was no windfall tax benefits, only tax
shortfalls, the tax impact of which was offset by the change in
the valuation allowance.
The Company has elected to apply the alternative transition
method to calculate the historical pool of windfall tax benefits
available as of the date of adoption of FAS 123(R) as
described in FASB Staff Position No. FAS 123(R)-3.
D-25
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
First Albany Companies Inc. has established several stock
incentive plans through which employees of the Company may be
awarded stock options, stock appreciation rights and restricted
common stock, which expire at various times through
December 31, 2011. The following is a recap of all plans as
of December 31, 2006.
|
|
|
|
|
Share awards authorized for
issuance
|
|
|
10,606,015
|
|
Share awards used:
|
|
|
|
|
Stock options granted and
outstanding
|
|
|
1,826,826
|
|
Restricted stock awards granted
and unvested
|
|
|
1,787,496
|
|
Options exercised and restricted
stock awards vested
|
|
|
5,320,514
|
|
Stock options expired and no
longer available
|
|
|
240,046
|
|
|
|
|
|
|
Total share awards used
|
|
|
9,174,882
|
|
|
|
|
|
|
Share awards available for future
awards
|
|
|
1,431,133
|
|
|
|
|
|
|
Adoption
of FAS 123(R)
For options granted prior to December 31, 2002, the
compensation expense was not required to be recognized in the
consolidated financial statements. Effective January 1,
2003, the Company adopted FAS 123, using the prospective
method of transition described in FAS 148. Under the fair
value recognition provisions of FAS 123 and FAS 148,
stock based compensation cost was measured at the grant date
based on the award and was recognized as expense over the
vesting period for awards granted after December 31, 2002.
On January 1, 2006, the Company adopted FAS 123(R). In
adopting FAS 123(R), the Company applied the modified
prospective application transition method. Under the modified
prospective application method, prior period financial
statements are not adjusted. Instead, the Company will apply
FAS 123(R) for new awards granted after December 31,
2005, any portion of awards that were granted after
January 1, 1995 and have not vested by January 1, 2006
and any outstanding liability awards. The impact of applying the
nominal vesting period approach for awards with vesting upon
retirement eligibility and the non-substantive approach was
immaterial. Upon adoption of FAS 123(R) on January 1,
2006, the Company recognized an after-tax gain of approximately
$0.4 million as the cumulative effect of a change in
accounting principle, primarily attributable to the requirement
to estimate forfeitures at the date of grant instead of
recognizing them as incurred. The estimated forfeiture rate for
2006 was 25%.
For the twelve month period ended December 31, 2006, the
effect of adopting FAS 123(R) was to increase the loss from
continuing operations by $0.2 million, increase the loss
before income taxes by $0.2 million, decrease the net loss
by $0.3 million including cumulative effect of a change in
accounting, increase cash flow from operations by $0.0, increase
cash flow from financing activities by $0.0, increase the basic
loss per share by $0.0 and increase the diluted loss per share
by $0.0.
For the period ended December 31, 2006, including the
cumulative effect of accounting change for 2006, total
compensation expense for share based payment arrangements was
$7.9 million and the related tax benefit was $0. There were
no significant modifications or plan design changes made during
the twelve month period ended December 31, 2006. At
December 31, 2006, the total compensation expense related
to non-vested awards not yet recognized is $7.1 million,
which is expected to be recognized over the remaining weighted
average vesting period of 1.6 years. The amount of cash
used to settle equity instruments granted under share based
payment arrangements during the twelve month period ended
December 31, 2006 was $0.1 million.
D-26
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table reflects the effect on net income if the
fair value based method had been applied to all outstanding and
unvested stock options in each period.
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands of dollars)
|
|
|
Loss, as reported
|
|
$
|
(10,217
|
)
|
|
$
|
(3,587
|
)
|
Add: Stock-based employee
compensation expense included in reported net loss, net of tax
|
|
|
194
|
|
|
|
318
|
|
Less: Total stock-based employee
compensation expense determined under fair value based method
for all stock options, net of tax
|
|
|
(703
|
)
|
|
|
(1,583
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(10,726
|
)
|
|
$
|
(4,852
|
)
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.74
|
)
|
|
$
|
(0.29
|
)
|
Diluted
|
|
$
|
(0.74
|
)
|
|
$
|
(0.29
|
)
|
Pro forma
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.78
|
)
|
|
$
|
(0.39
|
)
|
Diluted
|
|
$
|
(0.78
|
)
|
|
$
|
(0.39
|
)
|
|
|
|
|
|
|
|
|
|
The initial impact of FAS 123 on earnings per share may not
be representative of the effect on income in future years
because options vest over several years and additional option
grants may be made each year.
Options
Options granted under the plans have been granted at not less
than fair market value, vest over a maximum of five years, and
expire ten years after grant date. Option transactions for the
three year period ended December 31, 2006, under the plans
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Shares Subject
|
|
|
Average Exercise
|
|
|
|
to Option
|
|
|
Price
|
|
|
Balance at December 31, 2003
|
|
|
3,390,762
|
|
|
$
|
7.65
|
|
Options granted
|
|
|
122,500
|
|
|
|
13.23
|
|
Options exercised
|
|
|
(708,891
|
)
|
|
|
6.49
|
|
Options terminated
|
|
|
(90,019
|
)
|
|
|
6.93
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
2,714,352
|
|
|
$
|
8.23
|
|
Options granted
|
|
|
15,000
|
|
|
|
6.73
|
|
Options exercised
|
|
|
(91,091
|
)
|
|
|
5.75
|
|
Options terminated
|
|
|
(145,452
|
)
|
|
|
6.66
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
2,492,809
|
|
|
$
|
8.40
|
|
Options granted
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(9,468
|
)
|
|
|
5.77
|
|
Options terminated
|
|
|
(656,515
|
)
|
|
|
8.31
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
1,826,826
|
|
|
$
|
8.45
|
|
|
|
|
|
|
|
|
|
|
Options are exercisable when they become fully vested. The
intrinsic value of options exercised during the twelve month
periods ending December 31, 2006 and 2005 was $7 thousand
and $170 thousand, respectively. The
D-27
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
amount of cash received from the exercise of stock options
during the twelve month period ended December 30, 2006 was
$55 thousand. The tax benefit realized from the exercise of
stock options during the twelve month period ended
December 31, 2006 was $0. Shares issued by the Company as a
result of the exercise of stock options may be issued out of
Treasury or authorized shares available. At December 31,
2006, 1,804,056 options were exercisable with an average
exercise price of $8.40, and a remaining average contractual
term of 4.3 years. At December 31, 2006, 1,826,826
options outstanding had an intrinsic value of $0.0.
The following table summarizes information about stock options
outstanding under the plans at December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average Life
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
Exercise Price Range
|
|
Shares
|
|
|
(Years)
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
$4.60 - $6.44
|
|
|
458,241
|
|
|
|
4.42
|
|
|
$
|
5.70
|
|
|
|
457,967
|
|
|
$
|
5.70
|
|
$6.53 - $9.14
|
|
|
1,083,371
|
|
|
|
4.03
|
|
|
|
8.06
|
|
|
|
1,076,707
|
|
|
|
8.07
|
|
$9.47 - $13.26
|
|
|
36,000
|
|
|
|
7.01
|
|
|
|
13.11
|
|
|
|
36,000
|
|
|
|
13.11
|
|
$13.35 - $18.70
|
|
|
249,214
|
|
|
|
4.95
|
|
|
|
14.52
|
|
|
|
233,382
|
|
|
|
14.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,826,826
|
|
|
|
4.31
|
|
|
$
|
8.45
|
|
|
|
1,804,056
|
|
|
$
|
8.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2005, 2,329,671 options with an average
exercise price of $8.25 were exercisable; and at
December 31, 2004, 1,449,549 options with an average
exercise price of $8.82 were exercisable.
The Black-Scholes option pricing model is used to determine the
fair value of options granted. There were no options granted in
2006. Significant assumptions used to estimate the fair value of
share based compensation awards include the following:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Dividend yield
|
|
|
2.97
|
%
|
|
|
1.32% - 2.19%
|
|
Expected volatility
|
|
|
41
|
%
|
|
|
30% - 33%
|
|
Risk-free interest rate
|
|
|
3.8
|
%
|
|
|
3.2% - 3.8%
|
|
Expected lives (in years)
|
|
|
5.34
|
|
|
|
5.48 - 6.17
|
|
Weighted average fair value of
options granted
|
|
$
|
2.19
|
|
|
|
$4.08
|
|
|
|
|
|
|
|
|
|
|
Since no options were granted in 2006, the above assumptions
have not been established for 2006.
D-28
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Stock
Restricted stock awards, under the plans established by the
Company, have been valued at the market value of the
Companys common stock as of the grant date and are
amortized over the period in which the restrictions are
outstanding, which is typically 2-3 years. If an employee
reaches retirement age (which per the plan is age 65), an
employee will become 100% vested in all outstanding restricted
stock awards. For those employees who will reach retirement age
prior to the normal vesting date, the Company will amortize the
expense related to those awards over the shorter period.
Unvested restricted stock awards are typically forfeited upon
termination although there are certain award agreements that may
continue to vest subsequent to termination as long as other
restrictions are followed. The amortization related to unvested
restricted stock awards that continue to vest subsequent to
termination is accelerated upon the employees termination.
Restricted stock awards for the twelve month periods under the
plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
Unvested
|
|
|
Weighted Average
|
|
|
|
Restricted Stock
|
|
|
Grant-Date
|
|
|
|
Awards
|
|
|
Fair Value
|
|
|
Balance at December 31, 2003
|
|
|
920,297
|
|
|
$
|
7.66
|
|
Granted
|
|
|
1,482,765
|
|
|
|
13.28
|
|
Vested
|
|
|
(205,293
|
)
|
|
|
8.85
|
|
Fortified
|
|
|
(277,825
|
)
|
|
|
9.19
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
1,919,944
|
|
|
|
11.64
|
|
Granted
|
|
|
1,344,572
|
|
|
|
9.21
|
|
Vested
|
|
|
(700,580
|
)
|
|
|
11.06
|
|
Fortified
|
|
|
(329,611
|
)
|
|
|
11.14
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
2,234,325
|
|
|
|
10.43
|
|
Granted
|
|
|
932,212
|
|
|
|
4.58
|
|
Vested
|
|
|
(1,011,993
|
)
|
|
|
10.37
|
|
Forfeited
|
|
|
(366,480
|
)
|
|
|
8.91
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
1,788,064
|
|
|
$
|
7.73
|
|
|
|
|
|
|
|
|
|
|
The total fair value of awards vested, based on the fair market
value of the stock on the vest date, during the twelve month
periods ending December 31, 2006 and 2005 was
$5.8 million and $5.4 million, respectively.
Expense related to restricted stock approximated
$7.8 million in 2006, $9.9 million in 2005 and
$7.3 million in 2004. As of December 31, 2006 and
2005, the Company recorded $7.0 million and
$13.9 million, respectively, in unearned compensation
related to restricted stock issuances.
Other
The Company also maintains a tax deferred profit sharing plan
(Internal Revenue Code Section 401(k) Plan), which permits
eligible employees to defer a percentage of their compensation.
Company contributions to eligible participants may be made at
the discretion of the Board of Directors. The Company expensed
$0.2 million in 2006, $0.2 million in 2005, and
$0.3 million in 2004.
The Company has various other incentive programs, which are
offered to eligible employees. These programs consist of cash
incentives and deferred bonuses. Amounts awarded vest over
periods ranging up to five years. Costs are amortized over the
vesting period and approximated $2.6 million in 2006,
$2.5 million in 2005, and $2.0 million in 2004. The
remaining amounts to be expensed are $0.7 million at
December 31, 2006, to the extent they vest.
D-29
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2006 and December 31, 2005, there was
approximately $4.5 million and $5.1 million,
respectively, of accrued compensation on the Statements of
Financial Condition related to deferred compensation plans
provided by the Company which will be paid out between 2007 and
2016. As of February 28, 2007, the Company no longer
permits any new amounts to be deferred under these plans.
|
|
NOTE 17.
|
Net
Capital Requirements
|
First Albany Capital is subject to the Securities and Exchange
Commissions Uniform Net Capital Rule, which requires the
maintenance of a minimum net capital. First Albany Capital has
elected to use the alternative method permitted by the rule,
which requires it to maintain a minimum net capital amount of 2%
of aggregate debit balances arising from customer transactions
as defined or $1 million, whichever is greater. As of
December 31, 2006, First Albany Capital had aggregate net
capital, as defined, of $19.5 million, which equaled
536.41% of aggregate debit balances and $18.5 million in
excess of required minimum net capital.
Descap is subject to the Securities and Exchange
Commissions Uniform Net Capital Rule, which requires the
maintenance of minimum net capital and that the ratio of
aggregate indebtedness to net capital, both as defined by the
rule, shall not exceed 15:1. The rule also provides that capital
may not be withdrawn or cash dividends paid if the resulting net
capital ratio would exceed 10:1. As of December 31, 2006,
Descap had net capital of $2.1 million, which was
$1.8 million in excess of its required net capital.
Descaps ratio of Aggregate Indebtedness to Net Capital was
2.14 to 1.
|
|
NOTE 18.
|
Trading
Activities
|
As part of its trading activities, the Company provides
brokerage and underwriting services to institutional clients.
While trading activities are primarily generated by client order
flow, the Company also takes proprietary positions based on
expectations of future market movements and conditions and to
facilitate institutional client transactions. Interest revenue
and expense are integral components of trading activities. In
assessing the profitability of trading activities, the Company
views net interest and principal transactions revenues in the
aggregate. Certain trading activities expose the Company to
market and credit risks.
Market
Risk
Market risk is the potential change in an instruments
value caused by fluctuations in interest rates, equity prices,
or other risks. The level of market risk is influenced by the
volatility and the liquidity in the markets in which financial
instruments are traded.
As of December 31, 2006, the Company had approximately
$1.5 million of securities owned which were considered
non-investment grade. Non-investment grade securities are
defined as debt and preferred equity securities rated as BB+ or
lower or equivalent ratings by recognized credit rating
agencies. These securities have different risks than investment
grade rated investments because the companies are typically more
highly leveraged and therefore more sensitive to adverse
economic conditions and the securities may be more thinly traded
or not traded at all.
The Company seeks to mitigate market risk associated with
trading inventories by employing hedging strategies that
correlate interest rate, price, and spread movements of trading
inventories and hedging activities. The Company uses a
combination of cash instruments and derivatives to hedge its
market exposure. The following describes the types of market
risk faced by the Company:
Interest Rate Risk: Interest rate risk arises from the
possibility that changes in interest rates will affect the value
of financial instruments. The decision to manage interest rate
risk using futures or options as opposed to buying or selling
short U.S. Treasury or other securities depends on current
market conditions and funding considerations.
D-30
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Equity Price Risk: Equity price risk arises from the possibility
that equity security prices will fluctuate, affecting the value
of equity securities.
The Company also has sold securities that it does not currently
own and will therefore be obligated to purchase such securities
at a future date. The Company has recorded these obligations in
the financial statements at December 31, 2006 at market
values of the related securities and will incur a loss if the
market value of the securities increases subsequent to
December 31, 2006.
Credit
Risk
The Company is exposed to risk of loss if an issuer or counter
party fails to perform its obligations under contractual terms
(default risk). Both cash instruments and
derivatives expose the Company to default risk. The Company has
established policies and procedures for mitigating credit risks
on principal transactions, including reviewing and establishing
limits for credit exposure, requiring collateral to be pledged,
and assessing the creditworthiness of counter parties.
In the normal course of business, the Company executes, settles,
and finances various customer securities transactions. Execution
of these transactions includes the purchase and sale of
securities by the Company. These activities may expose the
Company to default risk arising from the potential that
customers or counter parties may fail to satisfy their
obligations. In these situations, the Company may be required to
purchase or sell financial instruments at unfavorable market
prices to satisfy obligations to other customers or counter
parties. In addition, the Company seeks to control the risks
associated with its customer margin activities by requiring
customers to maintain collateral in compliance with regulatory
and internal guidelines.
Liabilities to other brokers and dealers related to unsettled
transactions (i.e., securities failed-to-receive) are recorded
at the amount for which the securities were acquired, and are
paid upon receipt of the securities from other brokers or
dealers. In the case of aged securities failed-to-receive, the
Company may purchase the underlying security in the market and
seek reimbursement for losses from the counter party.
Concentrations
of Credit Risk
The Companys exposure to credit risk associated with its
trading and other activities is measured on an individual
counter party basis, as well as by groups of counter parties
that share similar attributes. Concentrations of credit risk can
be affected by changes in political, industry, or economic
factors. The Companys most significant industry credit
concentration is with financial institutions. Financial
institutions include other brokers and dealers, commercial
banks, finance companies, insurance companies and investment
companies. This concentration arises in the normal course of the
Companys brokerage, trading, financing, and underwriting
activities. To reduce the potential for concentration of risk,
credit limits are established and monitored in light of changing
counter party and market conditions. The Company also purchases
securities and may have significant positions in its inventory
subject to market and credit risk. Should the Company find it
necessary to sell such a security, it may not be able to realize
the full carrying value of the security due to the significance
of the position sold. In order to control these risks,
securities positions are monitored on at least a daily basis
along with hedging strategies that are employed by the Company.
|
|
NOTE 19.
|
Derivative
Financial Instruments
|
The Company does not engage in the proprietary trading of
derivative securities with the exception of highly liquid
treasury and municipal index futures contracts and options.
These index futures contracts and options are used primarily to
hedge securities positions in the Companys securities
owned. Gains and losses on these financial
D-31
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
instruments are included as revenues from principal
transactions. Trading profits and losses relating to these
financial instruments were as follows for the years ending
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands of dollars)
|
|
|
Trading profits state
and municipal bond
|
|
$
|
2,124
|
|
|
$
|
3,236
|
|
|
$
|
4,367
|
|
Index futures hedging
|
|
|
453
|
|
|
|
(1,621
|
)
|
|
|
(2,646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
2,577
|
|
|
$
|
1,615
|
|
|
$
|
1,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The contractual or notional amounts related to the index futures
contracts were as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands of dollars)
|
|
|
Average notional or contract
market value
|
|
$
|
(56,018
|
)
|
|
$
|
(49,983
|
)
|
Year end notional or contract
market value
|
|
$
|
(56,798
|
)
|
|
$
|
(18,699
|
)
|
|
|
|
|
|
|
|
|
|
The contractual or notional amounts related to these financial
instruments reflect the volume and activity and do not reflect
the amounts at risk. The amounts at risk are generally limited
to the unrealized market valuation gains on the instruments and
will vary based on changes in market value. Futures contracts
are executed on an exchange, and cash settlement is made on a
daily basis for market movements. Open equity in the futures
contracts in the amount of $2.4 million and
$1.0 million at December 31, 2006 and 2005,
respectively, are recorded as receivables from brokers, dealers
and clearing agencies. The market value of options contracts are
recorded as securities owned. The settlements of the
aforementioned transactions are not expected to have a material
adverse effect on the financial condition of the Company.
|
|
NOTE 20.
|
Segment
Analysis
|
The Company is organized around products and operates through
the following segments: Equities; Fixed Income, which is
comprised of Municipal Capital Markets and Descap; and Other.
The Company evaluates the performance of its segments and
allocates resources to them based on various factors, including
prospects for growth, return on investment, and return on
revenue.
The Company reclassified amounts related to the Taxable
Municipals group from Fixed Income-Other segment to the Fixed
Income Municipal Capital Markets segment due to
changes in the structure of the Companys internal
organization. As a result, Fixed Income Other was
comprised wholly of the Companys Fixed Income Middle
Markets business, which was discontinued in June 2007. 2006,
2005 and 2004 amounts have been reclassified to conform to
current presentation.
The Companys Equities business is comprised of equity
sales and trading and equities investment banking services.
Equities sales and trading provides equity trade execution to
institutional investors and generates revenues primarily through
commissions and sales credits earned on executing equity
transactions. Equities investment banking generates revenues by
providing financial advisory, capital raising, mergers and
acquisitions, and restructuring services to small and mid-cap
companies.
The Companys Fixed Income business consists of the
Municipal Capital Markets and Descap segments. As noted above,
the Companys Fixed Income-Other segment, which was
previously included in this segment was discontinued in June
2007. The Fixed Income business consists of Fixed Income sales
and trading and Fixed Income investment banking. Fixed Income
sales and trading provides trade execution to institutional
investors and generates revenues primarily through commissions
and sales credits earned on executing fixed income transactions
in the following products:
|
|
|
|
|
Mortgage-Backed and Asset-Backed Securities
|
|
|
|
|
|
Municipal Bonds (Tax-exempt and Taxable Municipal Securities)
|
|
|
|
|
|
High Grade Bonds (Investment Grade and Government Bonds)
|
D-32
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
These products can be sold through any of the Companys
Fixed Income segments. Fixed Income investment banking generates
revenues by providing financial advisory and capital raising
services to municipalities, government agencies and other public
institutions.
The Companys Other segment includes the results from the
Companys investment portfolio, venture capital and costs
related to corporate overhead and support. The Companys
investment portfolio generates revenue from unrealized gains and
losses as a result of changes in value of the Companys
investments, and realized gains and losses as a result of sales
of equity holdings. The Companys venture capital business
generates revenue through the management of a private equity
fund. This segment also includes results related to the
Companys investment in these private equity funds and any
gains or losses that might result from those investments.
During 2006 the Company discontinued its Taxable Fixed Income
corporate bond segment and its Institutional Convertible Bond
Arbitrage Advisory Group subsidiary which was previously
included in the Other caption (see
Discontinued Operations note). 2005 and 2004 amounts
have been reclassified to conform to the 2006 presentation.
Intersegment revenue has been eliminated for purposes of
presenting net revenue so that all net revenue presented is from
external sources. Interest revenue is allocated to the operating
segments and is presented net of interest expense for purposes
of assessing the performance of the segment. Depreciation and
amortization is allocated to each segment.
D-33
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Information concerning operations in these segments is as
follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands of dollars)
|
|
|
Net revenue (including net
interest income)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
59,819
|
|
|
$
|
60,047
|
|
|
$
|
77,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Capital Markets
|
|
|
36,724
|
|
|
|
41,546
|
|
|
|
36,010
|
|
Descap
|
|
|
17,560
|
|
|
|
18,198
|
|
|
|
12,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Income
|
|
|
54,284
|
|
|
|
59,744
|
|
|
|
48,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(4,491
|
)
|
|
|
27,006
|
|
|
|
13,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenue
|
|
$
|
109,612
|
|
|
$
|
146,797
|
|
|
$
|
138,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (included
in total net revenue)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
(7
|
)
|
|
$
|
13
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Capital Markets
|
|
|
(1,450
|
)
|
|
|
(687
|
)
|
|
|
785
|
|
Descap
|
|
|
(794
|
)
|
|
|
1,972
|
|
|
|
1,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Income
|
|
|
(2,244
|
)
|
|
|
1,285
|
|
|
|
1,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
679
|
|
|
|
1,342
|
|
|
|
1,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Interest Income
|
|
$
|
(1,572
|
)
|
|
$
|
2,640
|
|
|
$
|
3,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax Contribution
(Income/(loss) before income taxes, discontinued operations and
cumulative effect of an accounting change)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
(47
|
)
|
|
$
|
(4,712
|
)
|
|
$
|
4,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Capital Markets
|
|
|
5,887
|
|
|
|
9,421
|
|
|
|
3,833
|
|
Descap
|
|
|
(1,162
|
)
|
|
|
883
|
|
|
|
2,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Income
|
|
|
4,725
|
|
|
|
10,304
|
|
|
|
6,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(46,232
|
)
|
|
|
(2,046
|
)
|
|
|
(25,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pre-tax Contribution
|
|
$
|
(41,554
|
)
|
|
$
|
3,546
|
|
|
$
|
(15,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
expense (charged to each segment in measuring the Pre-tax
Contribution)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
676
|
|
|
$
|
973
|
|
|
$
|
1,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Capital Markets
|
|
|
273
|
|
|
|
360
|
|
|
|
373
|
|
Descap
|
|
|
110
|
|
|
|
121
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Income
|
|
|
383
|
|
|
|
481
|
|
|
|
469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
1,749
|
|
|
|
2,095
|
|
|
|
1,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations
|
|
|
165
|
|
|
|
316
|
|
|
|
448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,973
|
|
|
$
|
3,865
|
|
|
$
|
3,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D-34
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For presentation purposes, net revenue within each of the
businesses is classified as sales and trading, investment
banking, or net interest / other. Sales and trading
net revenue includes commissions and principal transactions.
Investment banking includes revenue related to underwritings and
other investment banking transactions. Investment gains (losses)
reflects gains and losses on the Companys investment
portfolio. Net interest / other includes interest
income, interest expense, fees and other revenue. Net revenue
presented within each category may differ from that presented in
the financial statements as a result of differences in
categorizing revenue within each of the revenue line items
listed below for purposes of reviewing key business performance.
The following table reflects revenues for the Companys
major products and services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands of dollars)
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Sales &
Trading
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
34,169
|
|
|
$
|
41,883
|
|
|
$
|
50,801
|
|
Fixed Income
|
|
|
35,961
|
|
|
|
29,232
|
|
|
|
27,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Institutional
Sales & Trading
|
|
|
70,130
|
|
|
|
71,115
|
|
|
|
78,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Banking
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
|
25,624
|
|
|
|
18,099
|
|
|
|
25,948
|
|
Fixed Income
|
|
|
20,302
|
|
|
|
29,185
|
|
|
|
18,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Banking
|
|
|
45,926
|
|
|
|
47,284
|
|
|
|
44,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest/Other
|
|
|
(1,953
|
)
|
|
|
1,392
|
|
|
|
2,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues
|
|
$
|
114,103
|
|
|
$
|
119,791
|
|
|
$
|
125,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys segments financial policies are the same as
those described in the Summary of Significant Accounting
Policies note. Asset information by segment is not
reported since the Company does not produce such information.
All assets are located in the United States of America. Prior
periods financial information has been reclassified to
conform to the current presentation.
|
|
NOTE 21.
|
New
Accounting Standards
|
SFAS No. 157,
Fair Value Measurements
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair Value
Measurements. This statement defines fair value, establishes
a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value
measurements. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after
November 15, 2007. Therefore, SFAS No. 157 will
be effective for our fiscal year beginning January 1, 2008.
The Company is currently evaluating the impact of
SFAS No. 157.
SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115
In February 2007, the Financial Accounting Standards Board
(FASB) issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115. This Statement permits entities to choose to
measure many financial instruments and certain other items at
fair value. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility
in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge
accounting provisions. This Statement is expected to expand the
use of fair value measurement, which is
D-35
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
consistent with the Boards long-term measurement
objectives for accounting for financial instruments.
SFAS No. 159 is effective for financial statements
issued for fiscal years beginning after November 15, 2007.
Therefore, SFAS No. 159 will be effective for our
fiscal year beginning January 1, 2008. The Company is
currently evaluating the impact of SFAS No. 159.
FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes
In July 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN No. 48). FIN No. 48
clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in
accordance with FASB Statement No. 109, Accounting for
Income Taxes. FIN No. 48 prescribes a recognition
threshold and measurement of a tax position taken or expected to
be taken in a tax return. FIN No. 48 also provides
guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and
transition. FIN No. 48 establishes a two-step process
for evaluation of tax positions. The first step is recognition,
under which the enterprise determines whether it is
more-likely-than-not that a tax position will be sustained upon
examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the
position. The enterprise is required to presume the position
will be examined by the appropriate taxing authority that has
full knowledge of all relevant information. The second step is
measurement, under which a tax position that meets the
more-likely-than-not recognition threshold is measured to
determine the amount of benefit to recognize in the financial
statements. The tax position is measured at the largest amount
of benefit that is greater than 50 percent likely of being
realized upon ultimate settlement. FIN No. 48 is
effective for fiscal years beginning after December 15,
2006. Therefore, FIN No. 48 is effective for our
fiscal year beginning January 1, 2007. The cumulative
effect of adopting FIN No. 48 is required to be
reported as an adjustment to the opening balance of retained
earnings (or other appropriate components of equity) for that
fiscal year, presented separately. The Company is currently
analyzing the impact of adopting FIN No. 48. At this
time, the Company does not anticipate that FIN No. 48
will have a significant impact on the financial statements.
|
|
NOTE 22.
|
Business
Combination
|
Descap
On May 14, 2004, the Company acquired all of the
outstanding common shares of Descap Securities, Inc.
(Descap), a New York-based broker-dealer and
investment bank. Descap specializes in the primary issuance and
secondary trading of mortgage-backed securities, asset-backed
securities, collateralized mortgage obligations and derivatives,
and commercial mortgage-backed securities. Its investment
banking group provides advisory and capital raising services,
and specializes in structured finance and asset-backed
securities and should serve to enhance the Companys
product offering. Descap will continue to operate under its
current name.
The value of the transaction was approximately
$31.4 million, which approximated Descaps revenue for
its previous fiscal year. The purchase price consisted of
$25 million in cash and 549,476 shares of the
Companys common stock, plus future contingent
consideration based on financial performance. Approximately
$9.2 million of the purchase price was to acquire the net
assets of the business, which consisted of assets of
$66.1 million and liabilities of $56.9 million. The
value of the transaction in excess of net assets
($22.2 million) was allocated $0.6 million to
identified customers based upon estimated future cash flows and
$21.6 to goodwill (see Intangible Assets note). The
shares issued to the sellers of Descap provide the sellers the
right to require the Company to purchase back the shares at a
price of $6.14 per share. The Company also has the right to
purchase back these shares from the sellers at a price of
$14.46. Both the put and call rights expires on May 31,
2007 (see Temporary Capital Note). The value
assigned to the shares of common stock issued ($10.39 per share)
approximated the market value of the stock on the date Descap
was acquired. The difference in the value assigned and the
market value was due to the put and call features attached to
the stock. The Company also issued 270,843 shares of
restricted stock to employees of Descap, which vests over a
three-year period.
D-36
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the estimated fair value of the
assets acquired and liabilities assumed at the date of
acquisition:
|
|
|
|
|
|
|
(In thousands of
|
|
|
|
dollars)
|
|
|
Cash and cash equivalents
|
|
$
|
3,868
|
|
Marketable securities at market
value
|
|
|
60,336
|
|
Other assets
|
|
|
1,909
|
|
|
|
|
|
|
Total assets acquired
|
|
|
66,113
|
|
|
|
|
|
|
Marketable securities sold short
|
|
|
(22,599
|
)
|
Short term borrowings
|
|
|
(32,411
|
)
|
Other liabilities
|
|
|
(1,936
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(56,946
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
9,167
|
|
|
|
|
|
|
Per the acquisition agreement, the sellers of Descap can receive
future contingent consideration based on the following: For each
of the succeeding three years following the acquisition ending
June 1, 2007, if Descaps Pre-Tax Net Income (as
defined) (i) is greater than $10 million, the Company
shall pay to the Sellers an aggregate amount equal to fifty
percent (50%) of Descaps Pre-Tax Net Income for such
period, or (ii) is equal to or less than $10 million,
the Company shall pay to the Sellers an aggregate amount equal
to forty percent (40%) of Descaps Pre-Tax Net Income for
such period (see Commitments and Contingencies note).
The Companys results of operations include those of Descap
since the date acquired. The following table presents pro forma
information as if the acquisition of Descap had occurred on
January 1, 2004:
|
|
|
|
|
|
|
Years Ended December 31, 2004
|
|
|
|
(In thousands of dollars
|
|
|
|
except for per share amounts and
|
|
|
|
shares outstanding)
|
|
|
Net revenues (including interest)
|
|
$
|
182,138
|
|
Total expenses (excluding interest)
|
|
|
190,351
|
|
|
|
|
|
|
(Loss) income from continuing
operations
|
|
|
(8,213
|
)
|
Income tax (benefit) expense
|
|
|
(6,646
|
)
|
|
|
|
|
|
(Loss) income from continuing
operations
|
|
|
(1,567
|
)
|
(Loss) from discontinued
operations, net of taxes
|
|
|
(1,703
|
)
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(3,270
|
)
|
|
|
|
|
|
Per share data:
|
|
|
|
|
Basic earnings:
|
|
|
|
|
Continued operations
|
|
$
|
(0.12
|
)
|
Discontinued operations
|
|
|
(0.14
|
)
|
|
|
|
|
|
Net income
|
|
$
|
(0.26
|
)
|
|
|
|
|
|
Diluted earnings:
|
|
|
|
|
Continued operations
|
|
$
|
(0.12
|
)
|
Discontinued operations
|
|
|
(0.14
|
)
|
|
|
|
|
|
Net income
|
|
$
|
(0.26
|
)
|
|
|
|
|
|
D-37
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 23.
|
Discontinued
Operations
|
In September 2006, the Company committed to a plan to dispose of
its Institutional Convertible Bond Arbitrage Advisory Group.
Accordingly, the Company will account for the disposition of the
Convertible Bond Arbitrage Advisory Group as discontinued
operations. It is expected that the disposition will be complete
by the first quarter of 2007. As such, the Company is not
currently in a position to provide estimates of the disposal
charges or any related cash expenditures the Company may incur
in connection with the decision. The Company does not, however,
expect that the charges will constitute a material charge for us
under generally accepted accounting principles or that any
related cash expenditures will be material in amount.
Additionally, in May 2006, the Company closed its Taxable Fixed
Income corporate bond division. In February 2005, the Company
sold its asset management operations, other than its
institutional convertible arbitrage group, and, in 2000 sold its
Private Client Group. The Company continues to report the
receipt and settlement of pending contractual obligations
related to these transactions as discontinued operations.
Amounts reflected in the Consolidated Statements of Operations
are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Months Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands of dollars)
|
|
|
Net revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Management Business
|
|
$
|
|
|
|
$
|
162
|
|
|
$
|
2,065
|
|
Convertible Bond Arbitrage
|
|
|
444
|
|
|
|
589
|
|
|
|
333
|
|
Private Client Group
|
|
|
|
|
|
|
49
|
|
|
|
458
|
|
Taxable Fixed Income
|
|
|
3,083
|
|
|
|
14,029
|
|
|
|
28,344
|
|
Fixed Income Middle Market
|
|
|
5,175
|
|
|
|
4,734
|
|
|
|
9,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
8,702
|
|
|
|
19,563
|
|
|
|
40,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Management Business
|
|
|
14
|
|
|
|
499
|
|
|
|
5,205
|
|
Convertible Bond Arbitrage
|
|
|
1,315
|
|
|
|
1,237
|
|
|
|
1,905
|
|
Convertible Bond
Arbitrage-Impairment Loss
|
|
|
1,534
|
|
|
|
|
|
|
|
|
|
Private Client Group
|
|
|
84
|
|
|
|
749
|
|
|
|
(78
|
)
|
Taxable Fixed Income
|
|
|
5,586
|
|
|
|
20,031
|
|
|
|
25,184
|
|
Fixed Income Middle Market
|
|
|
2,892
|
|
|
|
2,578
|
|
|
|
4,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
11,425
|
|
|
|
25,094
|
|
|
|
37,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) before income taxes
|
|
|
(2,723
|
)
|
|
|
(5,531
|
)
|
|
|
3,712
|
|
Income tax (benefit)
|
|
|
(22
|
)
|
|
|
(249
|
)
|
|
|
1,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from discontinued
operations, net of taxes
|
|
$
|
(2,701
|
)
|
|
$
|
(5,282
|
)
|
|
$
|
1,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Income Middle Markets
The revenues and expenses for the Fixed Income Middle Market
division of the periods above reflect the activity of that
operation through December 31, 2006. The Company allocated
interest expense to the division for the twelve months ended
December 31, 2006, 2005 and 2004, based on the level of
securities owned, attributable to this division. The Company had
allocated interest expense to this division in the amounts of
$2.9 million, $2.2 million and $1.2 million for
the twelve months ended December 31, 2006, 2005 and 2004,
respectively, based on debt identified as being specifically
attributed to those operations. Such amounts are included net of
interest income and included in total net revenues.
D-38
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Convertible
Bond Arbitrage Advisory Group
The revenues and expenses for the Institutional Convertible Bond
Arbitrage Advisory Group (the Group) of the periods
above reflect the activity of that operation through
December 31, 2006. The Company had allocated interest
expense to the Group operation in the amounts of
$0.1 million, $0.2 million and $0.1 million for
the twelve months ended December 31, 2006, 2005 and 2004,
respectively, based on debt identified as being specifically
attributed to those operations. For information on the
impairment loss, see the Intangible Assets note. At
December 31, 2006 the Group had total assets of
$0.2 million of which this represents primarily receivables
from clients included in other receivables on the Statements of
Financial Condition. All other Statement of Financial Condition
amounts related to the Group are not considered individually
material to the consolidated financial statement caption in
which they reside. Interest is allocated primarily based on
intercompany receivable/payables.
Taxable
Fixed Income
The revenues and expenses of the Taxable Fixed Income Corporate
Bond division for the twelve months ended December 31, 2005
and 2004, respectively, represents the activity of the
operations during that time period. The revenues and expenses of
the Taxable Fixed Income Corporate Bond division for the year
ended December 31, 2006, include the activity of the
operation, $1.7 million of costs related to closing of this
division, all of which was paid prior to December 31, 2006,
as well as other various residual activity. No interest has been
allocated to Taxable Fixed Income since this division was
closed. Prior to closing this division, interest was allocated
primarily based on the level of securities owned attributable to
this division. The Company had allocated interest expense to
Taxable Fixed Income in the amounts of $0.2 million,
$0.7 million and $0.8 million for each of the twelve
months ended December 31, 2006, 2005 and 2004 respectively.
Asset
Management Operations
The revenue and expense of the Asset Management operations for
the periods presented above reflect the activity of that
operation for the twelve months ended December 31, 2004
through February 2005, when it was sold, while the 2006 activity
reflects write-downs of receivables related to this operation
prior to its sale. The Company had allocated interest expense to
the asset management operation in the amounts of
$0.2 million in the year ended December 31, 2004.
Interest is allocated primarily based on intercompany
receivable/payables.
Private
Client Group
The Private Client Groups expense for the year ended
December 31, 2006 relates primarily to legal matters which
were related to the operations prior to its disposal offset by
the reversal of $0.3 million in costs related to previously
impaired space which was put into service. The revenue and
expense of the Private Client Group for the year ended
December 31, 2005, related primarily to certain legal
matters which were related to the operation prior to its
disposal. The revenue and expense of the Private Client Group
for the year ended December 31, 2004 relates primarily to
the recovery of retention amounts paid to employees of the
Private Client Group at the time it was sold, adjustments to
impairment accruals for office space based upon subsequent
utilization of the space by others in the Company and the
resolution of certain legal matters, all of which relate to the
operations prior to its disposal. For the periods presented,
interest was not allocated to the Private Client Group.
During 2004, the Company abandoned a software development
project and recognized as an impairment expense the costs
related to the project that had been capitalized as well as the
costs incurred to terminate the project. Impairment expense was
allocated to the Companys Other segment.
For impairment losses associated with intangible assets see
Intangible Assets note.
D-39
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During 2004, the Company undertook an internal review of its
operations in an effort to reduce costs. One of the results of
this review was the streamlining of certain functions and a
reduction in personnel. The reduction in personnel was initiated
during the period ended September 30, 2004 and was
completed by December 31, 2004. The Company incurred
restructuring expenses of approximately $1.3 million
related to this effort, which were accrued and expensed and
substantially paid in 2004. The natures of these costs are
compensation and benefits and the amount expensed through 2004
relates to employees who were terminated by December 31,
2004. Restructuring costs to date were allocated 85% to the
Companys Other segment, with the remainder allocated among
the other business units for segment reporting purposes.
|
|
NOTE 26.
|
Subsequent
Events
|
A. Stock
Based Compensation Awards
On January 20, 2007, the Company announced that the Board
of Directors of the Company approved a Program designed to
incentivize employees and better align their interest with those
of the Companys shareholders. The Program covers selected
current employees of the Company and is comprised of two
components. First, the employees will be allowed to rescind
outstanding restricted share awards and the Company will grant
them stock appreciation rights. Second, the Company will reprice
outstanding out-of-the-money stock options held by them. Stock
appreciation rights granted, and stock options repriced, will be
priced pursuant to the closing market price of the
Companys stock following the completion of the offers to
the employees.
The reprice component is subject to shareholder approval. In
addition, the Company intends to seek shareholder approval for
the increase in the number of shares that may be issued upon
exercise of stock appreciation rights, although such approval is
not necessary for the issuance or exercise of the stock
appreciation rights. The Company intends to seek such approvals
at its next regular annual shareholders meeting.
The rescission of outstanding restricted share awards and the
grants of stock appreciation rights will be effected pursuant to
an offer expected to commence in mid-February. The repricing
will be effected pursuant to an offer expected to commence
following shareholder approval. The financial impact of the
Program on the Company will depend on the rate of employee
participation, the value of the Companys common stock in
the future and the shareholder approvals referred to above. The
Program could result in the issuance of up to an additional
4.8 million shares of the Companys common stock. (See
Benefit Plans Note.)
B. Other
On February 16, 2007, Gordon J. Fox voluntarily resigned
his employment with First Albany Companies Inc. (the
Company) as Executive Managing Director.
Mr. Fox also served as Executive Managing Director and
Chief Operations Officer of the Companys wholly owned
subsidiary, First Albany Capital Inc. The Company does not
currently intend to replace Mr. Fox, but instead has
distributed his duties and responsibilities among other
employees.
C. Sale
of Companys Municipal Capital Markets
Division
The Company announced on March 6, 2007, the agreement for
the sale of the Municipal Capital Markets Group which consists
primarily of the Companys Municipal Capital Markets
segment (see Segment Analysis note) of its wholly
owned subsidiary, First Albany Capital Inc. to DEPFA BANK plc
for $12 million in cash, subject to certain adjustments as
outlined in the agreement, and the related purchase by DEPFA of
First Albanys municipal bond inventory used in the
business, which is expected to range in value at closing from
between $150-200 million. In connection with this
transaction, DEPFA will assume the rights to the name
First Albany and the Company will operate under a
new name to be announced. The closing of the transaction is
subject to DEPFA obtaining a US broker-dealer license,
regulatory approvals, the Companys shareholders approval
of the Companys name change, and other customary
conditions. The transaction is currently expected to close in
the third quarter in 2007.
D-40
First
Albany Companies Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
D. Discontinued
Operations and Segment Reporting
Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets and the Securities and Exchange Commission require
that when a reporting unit is identified as held for sale in a
financial statement, previously issued annual financial
statements included in a registration statement and proxy be
reclassified to show the operating results of the unit in
discontinued operations for all periods presented. Accordingly,
Fixed Income Middle Markets (FIMM) revenues and
expenses have been reclassified to discontinued operations for
all periods presented and certain disclosures in the notes
herein have been revised. This reclassification had no effect on
stockholders equity or net income.
The Company reclassified amounts related to the Taxable
Municipals group from Fixed Income-Other segment to the Fixed
Income-Municipal Capital Markets segment due to changes in the
structure of the Companys internal organization. As a
result, Fixed Income-Other was comprised wholly of the
Companys Fixed Income Middle Markets business, which was
discontinued on June 22, 2007. 2006, 2005 and 2004 amounts
have been reclassified to present Fixed Income Middle Markets as
part of discontinued operations.
D-41
SELECTED
QUARTERLY FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
|
|
2006
|
|
Mar 31
|
|
|
Jun 30
|
|
|
Sep 30
|
|
|
Dec 31
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands of dollars, except per share data)
|
|
|
Total revenues
|
|
$
|
28,852
|
|
|
$
|
45,051
|
|
|
$
|
22,304
|
|
|
$
|
29,308
|
|
Interest expense
|
|
|
4,231
|
|
|
|
4,178
|
|
|
|
3,429
|
|
|
|
4,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
24,621
|
|
|
|
40,873
|
|
|
|
18,875
|
|
|
|
25,243
|
|
Total expenses (excluding interest)
|
|
|
36,792
|
|
|
|
44,321
|
|
|
|
31,066
|
|
|
|
38,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(12,171
|
)
|
|
|
(3,448
|
)
|
|
|
(12,191
|
)
|
|
|
(13,744
|
)
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(12,171
|
)
|
|
|
(3,448
|
)
|
|
|
(12,191
|
)
|
|
|
(13,897
|
)
|
Income (loss) from discontinued
operations, net of taxes
|
|
|
(474
|
)
|
|
|
(2,726
|
)
|
|
|
(235
|
)
|
|
|
734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of
an accounting change
|
|
|
(12,645
|
)
|
|
|
(6,174
|
)
|
|
|
(12,426
|
)
|
|
|
(13,163
|
)
|
Cumulative effect of an accounting
change, net of taxes
|
|
|
427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(12,218
|
)
|
|
$
|
(6,174
|
)
|
|
$
|
(12,426
|
)
|
|
$
|
(13,163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common and
common equivalent share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.79
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.82
|
)
|
|
$
|
(0.93
|
)
|
Discontinued operations
|
|
|
(0.03
|
)
|
|
|
(0.16
|
)
|
|
|
(0.01
|
)
|
|
|
0.05
|
|
Cumulative effect of an accounting
change
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.79
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.83
|
)
|
|
$
|
(0.88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.79
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.82
|
)
|
|
$
|
(0.93
|
)
|
Discontinued operations
|
|
|
(0.03
|
)
|
|
|
(0.16
|
)
|
|
|
(0.01
|
)
|
|
|
0.05
|
|
Cumulative effect of an accounting
change
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.79
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.83
|
)
|
|
$
|
(0.88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The sum of the quarter earnings per share amount does not always
equal the full fiscal years amount due to the effect of
averaging the number of shares of common stock and common stock
equivalents throughout the year.
D-42
SELECTED
QUARTERLY FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
|
|
2005
|
|
Mar 31
|
|
|
Jun 30
|
|
|
Sep 30
|
|
|
Dec 31
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands of dollars, except per share data)
|
|
|
Total revenues
|
|
$
|
25,652
|
|
|
$
|
32,416
|
|
|
$
|
36,042
|
|
|
$
|
65,267
|
|
Interest expense
|
|
|
2,342
|
|
|
|
3,089
|
|
|
|
3,396
|
|
|
|
3,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
23,310
|
|
|
|
29,327
|
|
|
|
32,646
|
|
|
|
61,514
|
|
Total expenses (excluding interest)
|
|
|
34,116
|
|
|
|
35,171
|
|
|
|
36,615
|
|
|
|
37,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(10,806
|
)
|
|
|
(5,844
|
)
|
|
|
(3,969
|
)
|
|
|
24,165
|
|
Income tax expense (benefit)
|
|
|
(4,675
|
)
|
|
|
(2,543
|
)
|
|
|
(1,775
|
)
|
|
|
17,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations
|
|
|
(6,131
|
)
|
|
|
(3,301
|
)
|
|
|
(2,194
|
)
|
|
|
6,691
|
|
Loss from discontinued operations,
net of taxes
|
|
|
(764
|
)
|
|
|
(53
|
)
|
|
|
(717
|
)
|
|
|
(3,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(6,895
|
)
|
|
$
|
(3,354
|
)
|
|
$
|
(2,911
|
)
|
|
$
|
2,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common and
common equivalent share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.46
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
0.47
|
|
Discontinued operations
|
|
|
(0.06
|
)
|
|
|
0.00
|
|
|
|
(0.05
|
)
|
|
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.52
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.46
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
0.44
|
|
Discontinued operations
|
|
|
(0.06
|
)
|
|
|
0.00
|
|
|
|
(0.05
|
)
|
|
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.52
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The sum of the quarter earnings per share amount does not always
equal the full fiscal years amount due to the effect of
averaging the number of shares of common stock and common stock
equivalents throughout the year.
D-43
FIRST
ALBANY COMPANIES INC.
MANAGEMENTS DISCUSSION AND ANALYSIS
There are included or incorporated by reference in this document
statements that may constitute forward-looking
statements within the meaning of the safe harbor
provisions of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended. These forward-looking statements are usually
preceded by words such as may will
expect anticipate believe
estimate and continue or similar words.
All statements other than historical information or current
facts should be considered forward-looking statements.
Forward-looking statements may contain projections regarding
revenues, earnings, operations, and other financial projections,
and may include statements of future performance, strategies and
objectives. However, there may be events in the future which the
Company is not able to accurately predict or control which may
cause actual results to differ, possibly materially, from the
expectations set forth in the Companys forward-looking
statements. All forward-looking statements involve risks and
uncertainties, and actual results may differ materially from
those discussed as a result of various factors. Such factors
include, among others, market risk, credit risk and operating
risk. These and other risks are set forth in greater detail
throughout this document. The Company does not intend or assume
any obligation to update any forward-looking information it
makes.
Business
Overview
The Company is a full-service investment bank and institutional
securities firm. The Company operates through three primary
businesses: Equities, Fixed Income and Other.
The Companys Equities segment is comprised of Equity sales
and trading and Equities investment banking services. Equities
sales and trading provides equity trade execution to
institutional investors and generates revenues primarily through
commissions and sales credits earned on executing equity
transactions, trading gains and losses from market making
activities and capital committed to facilitating customer
transactions and fees received for equity research. Equities
investment banking generates revenues by providing financial
advisory, capital raising, mergers and acquisitions, and
restructuring services to small and mid-cap companies focusing
primarily on the healthcare, energy and powertech sectors of the
economy.
Included in the Fixed Income business are the following
segments: Descap, and Municipal Capital Markets. The
Companys Fixed Income business consists of Fixed Income
sales and trading and Fixed Income investment banking. Fixed
Income sales and trading provides trade execution to
institutional investors and generates revenues primarily through
commissions and sales credits earned on executing securities
transactions in the following products:
|
|
|
|
|
Mortgage-Backed and Asset-Backed Securities
|
|
|
|
|
|
Municipal Bonds (Tax-exempt and Taxable Municipal Securities)
|
|
|
|
|
|
High Grade Bonds (Investment Grade and Government Bonds)
|
These products can be sold through any of the Companys
Fixed Income segments. Fixed Income investment banking generates
revenues by providing financial advisory and capital raising
services to municipalities, government agencies and other public
institutions.
The Company reclassified amounts related to the Taxable
Municipals group from Fixed Income-Other segment to the Fixed
Income Municipal Capital Markets segment due to
changes in the structure of the Companys internal
organization. As a result, Fixed Income-Other was comprised
wholly of the Companys Fixed Income Middle Markets
business, which was discontinued in June 2007.
In March 2007, the Company and First Albany Capital agreed to
sell the Municipal Capital Markets Group to DEPFA. This group
generates revenue primarily through commissions and sales
credits earned on executing sales transactions in tax exempt and
taxable municipal securities as well as by providing financial
advisory and capital raising services to municipalities,
government agencies and other public institutions. Net revenues
of this group were approximately $36.7 million in the year
ended December 31, 2006. Completion of this sale is subject
to a variety of conditions. See Part II
Item 9b. Other Information.
D-44
The Companys Other segment includes the results from the
Companys investment portfolio, venture capital business,
and costs related to corporate overhead and support. The
Companys investment portfolio generates revenue from
unrealized gains and losses as a result of changes in the value
of the firms investments and realized gains and losses as
a result of sales of equity holdings. The Companys venture
capital business generates revenue through the management of a
private equity fund. This segment also includes results related
to the Companys investment in these private equity funds
and any gains or losses that might result from those investments.
The Company believes it has an opportunity to become one of the
premier investment banking boutiques serving the middle market,
which the Company believes is a largely under-served market. The
Company has focused on growing its middle market position by
broadening its product line through acquisition and investments
in key personnel and shedding non-core and non-growth
businesses. In the second quarter of 2006, the Company ceased
operations in the Taxable Fixed Income division due to a
changing business environment and continued revenue declines. In
the third quarter of 2006, the Company determined that it would
dispose of its convertible arbitrage advisory group due to a
continued decline of assets under management. As stated above,
the Company has agreed to sell the Municipal Capital Markets
Group to DEPFA, subject to a variety of conditions.
Business
Environment
Investment banking revenues are driven by overall levels of
capital raising activities in the marketplace and particularly
the sectors and jurisdictions that we focus on. Public offering
activity showed a decrease over a year ago levels with public
follow-on activity down 11.4 percent in terms of dollar
volume while the number of transactions decreased
1.6 percent. Initial public offering transactions were down
4.3 percent year-over-year and dollar volume increased
13.4 percent compared to 2005. The economic sectors of
healthcare, energy and powertech comprised 30.5 percent of
the public follow-on activity and 33.0 percent of the total
initial public offering activity for 2006. Negotiated
underwriting deals from our major markets of New York,
California and Texas declined 15.7 percent year-over-year
in terms of total dollar volume while the number of transactions
decreased 16.3 percent compared to 2005. (Source: Commscan
and SDC Platinum)
In the equity markets, NYSE daily trading volume was up
5.0 percent while the NASDAQ composite daily trading volume
increased 11.0 percent. Equity sales and trading revenues
are dependent on trading volumes, commission rates and the value
of our research product and other services that we can provide
to our clients. Our clients ability to now execute trades
electronically through the internet and other alternative
platforms have increased commission rate pressures on our sales
and trading business. Beginning in June 2006, one of the
Companys largest institutional brokerage clients in terms
of commission revenue, Fidelity Management and Research Company,
began to separate payments for research services and services
for trading commissions for brokerage services, instead of
compensating research services through trading commissions. The
results of these changes in business environment have decreased
commissions revenues from Fidelity compared to 2005, but have
not had a material impact on commission rates from our other
institutional clients. If other institutional equity clients
adopt similar practices, this trend can continue to have a
negative impact on our commission revenue. As of January 2,
2007, Equity research covered 240 stocks through 16 publishing
analysts focusing on the healthcare, energy and technology
sectors. (Source: Factset)
In the fixed income markets, secondary market activity for asset
backed products continues to be negatively impacted by a flat
and at times, inverted yield curve. In 2006, the average net
spread between the 10 year Treasury note and 2 year
Treasury note was -0.023 percent. In addition, price
transparency in the secondary corporate bond market and price
and coupon compression in the mortgage-backed market continues
to negatively impact spreads. (Source: U.S. Treasury
Department)
D-45
RESULTS
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands of dollars)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions
|
|
$
|
11,799
|
|
|
$
|
17,513
|
|
|
$
|
19,799
|
|
Principal transactions
|
|
|
57,698
|
|
|
|
54,221
|
|
|
|
57,192
|
|
Investment banking
|
|
|
47,418
|
|
|
|
47,441
|
|
|
|
45,932
|
|
Investment gains (losses)
|
|
|
(7,602
|
)
|
|
|
21,591
|
|
|
|
10,070
|
|
Interest income
|
|
|
14,331
|
|
|
|
15,220
|
|
|
|
9,474
|
|
Fees and others
|
|
|
1,871
|
|
|
|
3,391
|
|
|
|
1,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
125,515
|
|
|
|
159,377
|
|
|
|
144,405
|
|
Interest expense
|
|
|
15,903
|
|
|
|
12,580
|
|
|
|
6,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
109,612
|
|
|
|
146,797
|
|
|
|
138,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses (excluding
interest)
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
101,460
|
|
|
|
99,565
|
|
|
|
104,919
|
|
Clearing, settlement and brokerage
costs
|
|
|
6,113
|
|
|
|
8,621
|
|
|
|
6,196
|
|
Communications and data processing
|
|
|
11,404
|
|
|
|
11,794
|
|
|
|
12,323
|
|
Occupancy and depreciation
|
|
|
11,127
|
|
|
|
11,162
|
|
|
|
8,496
|
|
Selling
|
|
|
4,922
|
|
|
|
5,951
|
|
|
|
6,661
|
|
Impairment
|
|
|
7,886
|
|
|
|
|
|
|
|
1,375
|
|
Restructuring
|
|
|
|
|
|
|
|
|
|
|
1,275
|
|
Other
|
|
|
8,254
|
|
|
|
6,158
|
|
|
|
12,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses (excluding interest)
|
|
|
151,166
|
|
|
|
143,251
|
|
|
|
153,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes,
discontinued operations and cumulative effect of an accounting
change
|
|
|
(41,554
|
)
|
|
|
3,546
|
|
|
|
(15,066
|
)
|
Income tax expense (benefit)
|
|
|
153
|
|
|
|
8,481
|
|
|
|
(9,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(41,707
|
)
|
|
|
(4,935
|
)
|
|
|
(5,495
|
)
|
Loss from discontinued operations,
net of taxes
|
|
|
(2,701
|
)
|
|
|
(5,282
|
)
|
|
|
1,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of
an accounting change
|
|
|
(44,408
|
)
|
|
|
(10,217
|
)
|
|
$
|
(3,587
|
)
|
Cumulative effect of an accounting
change
|
|
|
427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(43,981
|
)
|
|
|
(10,217
|
)
|
|
|
(3,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
14,331
|
|
|
|
15,220
|
|
|
|
9,474
|
|
Interest expense
|
|
|
15,903
|
|
|
|
12,580
|
|
|
|
6,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
|
|
$
|
(1,572
|
)
|
|
$
|
2,640
|
|
|
$
|
3,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
Financial Overview
For the fiscal year ended December 31, 2006, net revenues
from continuing operations were $109.6 million, compared to
$146.8 million in 2005. An improved performance in equities
investment banking and Fixed Income sales and trading were
overshadowed by a decline in net revenues in equities sales and
trading, public finance and investment gains (losses). Results
were negatively impacted by $6.8 million in expenses,
related to the Companys retention program,
$7.9 million related to the impairment of goodwill and
$2.4 million in expenses, incurred as part of the
Companys effort to consolidate offices. Including these
charges, the Company reported a net loss from
D-46
continuing operations of $41.7 million in 2006 compared to
a net loss from continuing operations of $4.9 million for
the same period in 2005. Earnings per diluted share from
continuing operations for the year ended December 31, 2006
was a net loss of $2.75 compared to a net loss of $0.36 per
diluted share for the same period in 2005. The Company reported
a consolidated net loss of $44.0 million for the year ended
December 31, 2006, compared to a consolidated net loss of
$10.2 million for the same period in 2005. Consolidated
diluted earnings per share for the year ended December 31,
2006, was a net loss of $2.90 compared to a net loss of $0.74
for the same period in 2005.
Net
Revenue
Net revenue fell $37.2 million, or 25.3 percent, in
2006 to $109.6 million led by a decline in investment gains
(losses). Excluding investment gains and losses, net revenues
from continuing operations were $117.2 million, compared to
$125.2 million for 2005, a decline of 6.4 percent.
Strong revenue growth in equities investment banking of
$7.5 million was offset a by decline in Fixed Income
investment banking, due to a 15.0 percent decrease in
senior/sole and co-managed deals. A decrease in equity listed
commission revenue resulted in a 32.6 percent decrease in
commission revenue. Principal transaction revenue increased
6.4 percent led by an increase in Fixed Income product
revenue offset to a certain degree by a decrease in NASDAQ net
revenue. Declines in customer activity and pressure on overall
commission rates for both listed and NASDAQ led to the decline
in commission revenue. Fees and other revenue decreased
$1.5 million primarily as a result of a $1.5 million
gain on the sale of the Companys NYSE seat realized in
2005. Net interest expense of $1.6 million in 2006
represented a 159.6 percent decrease compared to 2005, as a
result of a continuing decline in interest rate spreads.
Non-Interest
Expense
Non-interest expense increased $7.9 million, or
5.5 percent, to $151.2 million in 2006.
Compensation and benefits expense increased 1.9 percent or
$1.9 million to $101.5 million. Retention compensation
of $6.8 million was offset by decreases in incentive
compensation expense of $1.3 million and salary expense of
$3.5 million. The decline in salary expense was the result
of a 12 percent decrease in average full time headcount
from continuing operations.
Clearing, settlement, and brokerage costs of $6.1 million
represented a decrease of 29.1 percent compared to the
prior year. A reduction in electronic communications network
(ECN) expense of $1.3 million and transaction
fee expense of $0.6 million, as a result of a decrease in
NASDAQ trading activity, drove the variance.
Communications and data processing costs decreased
$0.4 million or 3.3 percent. A $0.5 million
decline in data processing expense was offset by a
$0.1 million increase in market data services expense. Data
processing expense was down in equities due to lower trading
volumes and additional pricing concessions from the
Companys back-office vendor. An increase in trading
communications costs in Fixed Income accounted for the increase
in market data services.
Occupancy and depreciation expense remained relatively unchanged
at $11.1 million. In 2006, the Company incurred
$1.8 million in impairment charges as a result of
consolidating its office space in Albany, New York City, Boston
and Greenwich, CT along with incurring an additional
$0.6 million in costs related to the Companys
additional office space in New York City. In 2005, the Company
incurred $2.1 million in costs relating to its additional
office space in New York City and San Francisco. The office
consolidations in Albany, New York City and Boston will
eliminate $1.0 million in annual occupancy expense.
Selling expense was down 17.3 percent, or
$1.0 million, in 2006 as a result of a decrease in travel
and entertainment and promotional expenses.
The Company recorded an impairment of its intangible assets
including goodwill relating to Descap Securities of
$7.9 million in 2006.
Other expense increased $2.1 million, or 34.0 percent,
in 2006. The decrease was driven primarily by an increase in
legal expenses of $2.2 million relating to various legal
matters.
The Company did not report a benefit for federal and state
income taxes in the 2006 financial statements as the deferred
tax asset generated from the Companys net operating loss
has been offset by a full valuation allowance. In
D-47
2006, the Company did record income tax expense for continuing
operations related to an estimated federal alternative minimum
tax (AMT) and estimated taxable income in certain
states. The AMT tax for continuing operations was partially
offset by an income tax benefit for discontinued operations.
Refer to the Income Tax note of the Consolidated
Financial Statements for more detail.
2005
Financial Overview
For the fiscal year ended December 31, 2005, net revenues
from continuing operations were $146.8 million, compared to
$138.4 million in 2004. A record performance in public
finance and an increase in investment income were mitigated by a
decline in net revenues in both Equities and Fixed Income sales
and trading. Results were negatively impacted by
$9.2 million in expense related to a deferred tax valuation
allowance, $1.5 million in expenses, net of taxes, related
to severance costs in connection with staffing reductions and
$1.2 million in expenses, net of taxes, incurred as part of
the Companys effort to consolidate offices. Including
these charges, the Company reported a net loss from continuing
operations of $4.9 million in 2005 compared to a net loss
from continuing operations of $5.5 million for the same
period in 2004. Earnings per diluted share from continuing
operations for the year ended December 31, 2005 was a net
loss of $0.36 compared to a net loss of $0.44 per diluted share
for the same period in 2004. The Company reported a consolidated
net loss of $10.2 million for the year ended
December 31, 2005, compared to a consolidated net loss of
$3.6 million for the same period in 2004. Consolidated
diluted earnings per share for the year ended December 31,
2005, was a net loss of $0.74 compared to a net loss of $0.29
for the same period of 2004.
Net
Revenue
Net revenue increased $8.4 million, or 6.1 percent, in
2005 to $146.8 million. Strong revenue growth in fixed
income investment banking and an $11.5 million increase in
investment gains were offset by lower revenues in Equity sales
and trading, and equities investment banking. A decrease in
equity listed commission revenue resulted in an
11.5 percent decrease in commission revenue. Fees and other
revenue increased 75.0 percent primarily as a result of a
$1.5 million gain on the sale of the Companys NYSE
seat. Net interest income of $2.6 million represented a
22.9 percent decrease compared to 2004 as a result of a
decline in interest rate spreads.
Non-Interest
Expense
Non-interest expense decreased $10.2 million, or
6.6 percent, to $143.3 million in 2005.
Compensation and benefits expense decreased 5.1 percent or
$5.4 million to $99.6 million. A decline in incentive
compensation expense of $8.0 million mainly as a result of
lower net revenues in Equities, and decreases in salary expense
of $0.2 million and employee benefits of $0.4 million
were partially offset by an increase of restricted stock
amortization of $2.1 million.
Clearing, settlement, and brokerage costs of $8.6 million
represented an increase of 39.1 percent compared to the
prior year. An increase in electronic communications network
(ECN) expense in Equities as a result of an increase
in NASDAQ trading activity drove the variance.
Communications and data processing costs decreased
$0.5 million or 4.3 percent. A $1.5 million
decline in data processing expense was offset by a
$0.9 million increase in market data services expense. Data
processing expense was down across all groups as a result of
more favorable pricing from the Companys back-office
vendor. An increase in trading communications costs in Equities
and market data costs in Descap accounted for the increase in
market data services.
Occupancy and depreciation expense increased 31.4 percent
or $2.7 million. Costs associated with implementing the
companys real estate strategy in New York City and
San Francisco accounted for $2.1 million of the
increase.
Selling expense was down 10.7 percent, or
$0.7 million, in 2005 as a result of a decrease in travel
and entertainment expense and dues, fees and assessment costs.
D-48
Other expense decreased $6.0 million, or 49.4 percent,
in 2005. The decrease was driven by a $3.2 million decline
in legal expenses and a $1.1 million decrease in
professional fees relating to documenting compliance with
Section 404 of the Sarbanes-Oxley Act.
In 2005, the Company recorded an expense of $9.2 million
for a valuation allowance related to its deferred tax asset. The
valuation allowance was established as a result of weighing all
positive and negative evidence, including the Companys
history of cumulative losses over the past two years and the
difficulty of forecasting future taxable income. Refer to the
Income Tax note of the Consolidated Financial
Statements for more detail.
Business
Highlights
For presentation purposes, net revenue within each of the
businesses is classified as sales and trading, investment
banking, investment gains (losses), or net
interest/other.
Sales and trading net revenue includes commissions and principal
transactions. Investment banking includes revenue related to
underwritings and other investment banking transactions.
Investment gains (losses) reflects gains and losses on the
Companys investment portfolio. Net
interest/other
includes interest income, interest expense, fees and other
revenue. Net revenue presented within each category may differ
from that presented in the financial statements as a result of
differences in categorizing revenue within each of the revenue
line items listed below for purposes of reviewing key business
performance.
Equities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands of dollars)
|
|
|
Net
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Trading
|
|
$
|
34,169
|
|
|
$
|
41,883
|
|
|
$
|
50,801
|
|
Investment Banking
|
|
|
25,624
|
|
|
|
18,099
|
|
|
|
25,948
|
|
Net Interest/Other
|
|
|
26
|
|
|
|
65
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenue
|
|
$
|
59,819
|
|
|
$
|
60,047
|
|
|
$
|
77,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
$
|
(47
|
)
|
|
$
|
(4,712
|
)
|
|
$
|
4,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
vs. 2005
Net revenues in Equities were essentially flat with revenues
decreasing only $0.2 million or 0.4 percent to $59.8
in 2006. In 2006, Equities represented 48.9 percent of
consolidated net revenue excluding the impact of investment
gains (losses) compared to 46.2 percent in 2005. Equity
sales and trading revenue decreased across all products with net
revenue down 18.4 percent compared to 2005. Compared to
2005, NASDAQ net revenue was down 12.8 percent to
$23.8 million and listed net revenue of $10.3 million
represented a 29.1 percent decrease relative to the prior
year. Declines in customer activity and pressure on overall
commission rates for both listed and NASDAQ were partially
offset by improved trading loss ratios related to market-making
activities in both groups. Investment banking net revenues had a
solid performance with an increase 41.6 percent versus the
prior year. The group showed improvements across all product
groups with public offering revenue up 21.5 percent with
net revenue of $13.9 million and advisory, private
placement and other revenue increasing 76.0 percent to
$11.7 million. In terms of volume, investment banking
completed 41 transactions in 2006 compared to 32 in 2005.
2005
vs. 2004
Net revenues in Equities dropped $17.0 million, or
22.0 percent, to $60.0 million in 2005. In 2005
Equities represented 46.2 percent of consolidated net
revenue excluding the impact of investment gains (losses)
compared to 55.8 percent in 2004. Equity sales and trading
revenue decreased across all products with net revenue down
17.6 percent compared to 2004. Compared to 2004, NASDAQ net
revenue was down 19.9 percent to $27.3 million and
listed net revenue of $14.5 million represented a
12.9 percent decrease relative to the prior year.
Investment banking net revenues declined 30.2 percent
versus the prior year. The group experienced revenue declines
across all product groups with public offering revenue down more
than $1.4 million to $11.4 million and advisory and
private
D-49
placement revenue decreasing $4.9 million to
$8.4 million. In terms of volume, investment banking
completed 32 transactions in 2005 compared to 45 in 2004.
Fixed
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands of dollars)
|
|
|
Net
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Trading
|
|
$
|
35,961
|
|
|
$
|
29,232
|
|
|
$
|
27,400
|
|
Investment Banking
|
|
|
20,302
|
|
|
|
29,185
|
|
|
|
18,712
|
|
Net Interest / Other
|
|
|
(1,979
|
)
|
|
|
1,327
|
|
|
|
1,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenue
|
|
$
|
54,284
|
|
|
$
|
59,744
|
|
|
$
|
48,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$
|
4,725
|
|
|
$
|
10,304
|
|
|
$
|
6,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
vs. 2005
Fixed Income net revenue declined 9.1 percent to
$54.3 million in 2006. Fixed Income sales and trading net
revenue was up $6.7 million or 23.0 percent compared
to the prior year. Fixed Income investment banking net revenue
of $20.3 million represented a 30.4 percent decrease
compared to the prior year. Fixed Income sales and trading
showed year-over-year gains across all groups with mortgage
backed securities / asset backed securities up
$2.3 million or 14.4 percent, and municipal sales and
trading up $4.4 million or 33.3 percent. The decrease
in Fixed Income investment banking was primarily driven by a
42.6 percent, or $9.1 million, decrease in
underwriting related revenue. The decrease in underwriting
activity was due to a 15.0 percent decline in senior/sole
managed and co-managed deals. Operating income in 2005 was
negatively impacted primarily by the reduction in net revenues.
As stated above, the Company has agreed to sell the Municipal
Capital Markets Group to DEPFA, subject to a variety of
conditions.
2005
vs. 2004
Fixed Income net revenue increased 24.3 percent or
$11.7 million to $59.7 million in 2005. Fixed Income
sales and trading revenue was up 6.7 percent compared to
the prior year, while Fixed Income investment banking net
revenue of $29.2 million represented a 56.0 percent
increase compared to the prior year. Contributing to the
increase in sales and trading revenue was mortgage and
asset-backed net revenue, which increased 45.0 percent to
$15.9 million, offset by municipal net revenue of
$13.4 million, which was down 18.8 percent in 2005.
Contributing to the increase in investment banking net revenue
was a 60.1 percent, or $8.0 million, increase in
underwriting related revenue offset by an 8.8 percent, or
$3.8 million, decline in public finance advisory fees.
Operating income in 2005 was positively impacted by an increase
in net revenue along with a decrease in legal expense of
$1.6 million, which was mitigated by increases in
compensation and benefits of $8.2 million, communications
and data processing of $0.6 million and occupancy and
equipment of $0.4 million.
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands of dollars)
|
|
|
Net
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Gain (Losses)
|
|
$
|
(7,602
|
)
|
|
$
|
21,591
|
|
|
$
|
10,070
|
|
Net Interest / Other
|
|
|
3,111
|
|
|
|
5,415
|
|
|
|
3,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenue
|
|
$
|
(4,491
|
)
|
|
$
|
27,006
|
|
|
$
|
13,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
$
|
(46,232
|
)
|
|
$
|
(2,046
|
)
|
|
$
|
(25,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D-50
2006
vs. 2005
Net revenue was down $31.5 million compared to 2005 as a
result of a $29.2 million decrease in investment gains
(losses) related to the Companys investment portfolio. The
decrease in investment gains (losses) is comprised of a decrease
of $35.3 million from the Companys Public investments
offset by an increase of $6.1 million relating to the
Companys private investments. Net Interest/Other was down
$2.3 million due to a $1.5 million gain on the sale of
the Companys NYSE seat in 2005 and a $0.5 million
decrease in management fee revenues from the Companys
venture capital group. Operating loss was negatively impacted by
the decrease in revenues, increases in retention compensation of
$6.8 million, impairment related to goodwill of
$7.9 million and legal expenses of $1.2 million offset
by a reduction in incentive compensation of $3.9 million.
2005
vs. 2004
Net revenue was up $13.7 million compared to 2004 as a
result of an $11.5 million increase in investment gains and
losses related to the Companys investment portfolio. The
increase in investment gains (losses) is primarily due to the
company recording a $31.0 million gain from the initial
public offering of iRobot Corporation (Nasdaq: IRBT) in the
fourth quarter of 2005 offset by decreases in investment gains
(losses) from the Companys other public investments of
$16.8 million and private investments of $2.7 million.
Net Interest/Other were up primarily due to a $1.5 million
gain on the sale of the companys NYSE seat. Operating
Income was positively impacted by increased net revenues and the
results of the Companys effort to reduce expenses through
the reduction in support head count and professional fees.
LIQUIDITY
AND CAPITAL RESOURCES
A substantial portion of the Companys assets, similar to
other brokerage and investment banking firms, are liquid,
consisting of cash and assets readily convertible into cash.
These assets are financed primarily by the Companys
payables to brokers and dealers, bank lines of credit and
customer payables. The level of assets and liabilities will
fluctuate as a result of the changes in the level of positions
held to facilitate customer transactions and changes in market
conditions.
For the year ended December 31, 2006, the Company primarily
financed its operations through cash provided by its operations
and proceeds received from sales of both its privately held
investments and its investments in publicly traded securities
(see Investments note of the Consolidate Financial
Statements). The Companys primary uses of funds during
this period have been for the repayment of certain short-term
bank loans and notes payable. As of December 31, 2006, the
Company had cash of approximately $4.2 million and working
capital of approximately $30 million. The Company believes
that cash from operations and available credit lines will be
sufficient to meet the Companys anticipated cash needs for
working capital for the next 12 months. However, if the
Companys estimates of revenues, expenses or capital or
liquidity requirements change or are inaccurate, the Company may
need to raise additional funds. The Company cannot be certain
that it will be able to obtain additional financing on
acceptable terms, or at all.
In March 2007, the Company and First Albany Capital agreed to
sell the Municipal Capital Markets Group to DEPFA for
$12 million in cash, subject to adjustment. As part of the
transaction, DEPFA will purchase First Albany Capitals
municipal bond inventory used in the business of the Municipal
Capital Markets Group, which is expected to range in value at
closing from between $150 million to $200 million. The
Company intends that it will use the proceeds from these
transactions to repay in full associated short-term borrowings
used to finance the bond inventory as well as approximately
$11 million in long-term debt. After debt repayment and
transactional and associated restructuring costs, the Company
anticipates having $12 million in cash, which it intends to
use to fund investments for growth. Completion of the
transaction is subject to a variety of conditions however, and
consequently, the sale may not be completed. See
Part II Item 9b. Other Information.
Short-term
Bank Loans and Notes Payable
Short-term bank loans are made under a variety of bank lines of
credit totaling $210 million of which approximately
$129 million was outstanding at December 31, 2006.
These bank lines of credit consist of credit lines that the
Company has been advised are available solely for financing
securities inventory but for which no
D-51
contractual lending obligation exist and are repayable on
demand. These loans are collateralized by eligible securities,
including Company-owned securities, subject to certain
regulatory formulas. Typically, these lines of credit will allow
the Company to borrow up to 85% to 90% of the market value of
the collateral. These loans bear interest at variable rates
based primarily on the Federal Funds interest rate. The weighted
average interest rates on these loans were 5.74% and 4.68% at
December 31, 2006 and 2005 respectively. At
December 31, 2006, short-term bank loans were
collateralized by Company-owned securities, which are classified
as securities owned of $145 million.
The Companys notes payable includes a $12.7 million
Term Loan which financed the acquisition of Descap Securities,
Inc. at an interest rate which is 2.4% over the
30-day
London InterBank Offered Rate (LIBOR) (5.33% at
December 31, 2006). Interest only was payable for the first
six months, and thereafter monthly payments of $238 thousand in
principal and interest over the life of the loan which matures
on May 14, 2011. The Term Loan agreement contains various
covenants. On April 22, 2005 the lender agreed to waive the
financial covenants contained in the term loan agreement for the
quarter ended March 31, 2005. On August 9, 2005, the
lender agreed to amend the loan document, effective
June 30, 2005. The lender agreed to eliminate the EBITDAR
requirement of $22.5 million, amend the definition for
operating cash flow, fixed charges, EBITDAR and modified
indebtedness. The lender also agreed to increase the maximum
allowable modified total funded indebtedness to EBITDAR ratio
from 1.75 to 2.00 through March 31, 2006. Thereafter, the
revised ratio requires that the Companys modified total
funded indebtedness to EBITDAR not exceed 1.75 to 1(for the
twelve month period ending December 31, 2006, modified
total funded indebtedness to EBITDAR ratio was 0.51 to 1). In
addition, the Modified Term Loan agreement requires operating
cash flow to total fixed charges (as defined) to be not less
than 1.15 to 1 (for the twelve-month period ending
December 31, 2006, the operating cash flow to total fixed
charge ratio was 2.15 to 1). EBITDAR is defined as earnings
before interest, taxes, depreciation, amortization and lease
expense plus pro forma adjustments. As of December 31,
2006, the Company was in compliance with all covenants contained
in the Term Loan. The definition of operating cash flow includes
the payment of cash dividends; therefore, the Companys
ability to pay cash dividends in the future may be impacted by
the covenant.
Principal payments for the Term Loan are due as follows:
|
|
|
|
|
|
|
(In thousands of dollars)
|
|
|
2007
|
|
$
|
2,857
|
|
2008
|
|
|
2,857
|
|
2009
|
|
|
2,857
|
|
2010
|
|
|
2,857
|
|
2011
|
|
|
1,239
|
|
|
|
|
|
|
Total principal payments remaining
|
|
$
|
12,667
|
|
|
|
|
|
|
In March 2006, our $10 million Senior Note, dated
June 13, 2003, which was set to mature on June 30,
2010, was repaid in full. In May 2006, principal payments of
$4.9 million and $8.7 million were made to pay off the
Companys $4.9 million Term Loan and $11 million
Term Loan, respectively.
Regulatory
As of December 31, 2006, First Albany Capital Inc. and
Descap Securities, Inc., both registered broker-dealer
subsidiaries of First Albany Companies Inc., were in compliance
with the net capital requirements of the Securities and Exchange
Commission. The net capital rules restrict the amount of a
broker-dealers net assets that may be distributed. Also, a
significant operating loss or extraordinary charge against net
capital may adversely affect the ability of the Companys
broker-dealer subsidiaries to expand or even maintain their
present levels of business and the ability to support the
obligations or requirements of the Company. As of
December 31, 2006, First Albany Capital had net capital of
$19.5 million, which exceeded minimum net capital
requirements by $18.5 million, while Descap had net capital
of $2.1 million, which exceeded minimum net capital
requirements by $1.8 million.
The Company enters into underwriting commitments to purchase
securities as part of its investment banking business. Also, the
Company may purchase and sell securities on a when-issued basis.
As of December 31, 2006, the
D-52
Company had $0.4 million outstanding underwriting
commitments and had purchased $7.0 million and sold
$14.5 million securities on a when-issued basis.
Investments
and Commitments
As of December 31, 2006, the Company had a commitment to
invest up to an additional $3.8 million in
FA Technology Ventures, L.P. (the Partnership).
The investment period expired in July 2006; however, the General
Partner may continue to make capital calls up through July 2011
for additional investments in portfolio companies and for the
payment of management fees. The Company intends to fund this
commitment from operating cash flow. The Partnerships
primary purpose is to provide investment returns consistent with
risks of investing in venture capital. In addition to the
Company, certain other limited partners of the Partnership are
officers or directors of the Company. The majority of the
commitments to the Partnership are from non-affiliates of the
Company.
The General Partner for the Partnership is FATV GP LLC. The
General Partner is responsible for the management of the
Partnership, including among other things, making investments
for the Partnership. The members of the General Partnership are
George McNamee, Chairman of the Company, First Albany Enterprise
Funding, Inc., a wholly owned subsidiary of the Company, and
other employees of the Company or its subsidiaries.
Mr. McNamee is required under the Partnership agreement to
devote a majority of his business time to the conduct of the
affairs of the Partnership and any parallel funds. Subject to
the terms of the Partnership Agreement, under certain
conditions, the General Partnership is entitled to share in the
gains received by the Partnership in respect of its investment
in a portfolio company. The General Partner will receive a
carried interest on customary terms. The General Partner has
contracted with FA Technology Ventures Corporation (FATV), a
wholly owned subsidiary of the Company, to act as an investment
advisor to the General Partner.
As of December 31, 2006, the Company had an additional
commitment to invest up to $0.3 million in funds that
invest in parallel with the Partnership; this parallel
commitment may be satisfied by investments from the
Companys Employee Investment Funds (EIF). The investment
period expired in July 2006, but the General Partner may
continue to make capital calls up through July 2011 for
additional investments in portfolio companies and for the
payment of management fees. The Company anticipates that the
portion of the commitment that is not funded by employees
through the EIF will be funded by the Company through operating
cash flow.
Publicly held investments as of December 31, 2005 was made
up entirely of iRobot (IRBT) and Mechanical
Technology Incorporated (MKTY). During the year
ended December 31, 2006, the Company sold its remaining
1,116,040 shares of Mechanical Technology Incorporated
(MKTY) for proceeds of approximately
$3.3 million. Also during the year ended December 31,
2006, the Company sold its remaining 1,116,290 shares of
iRobot (IRBT) for proceeds of approximately
$24.2 million.
Over the last several years, the Company funded much of its
operating losses through the sale of its publicly held
investments. The Companys current investment portfolio
consists almost entirely of its interest in the Partnership, the
General Partner, and the EIF. Such investments are relatively
illiquid and the Company may not realize any return on these
investments for some time or at all.
Contingent
Consideration
On May 14, 2004, the Company acquired 100 percent of
the outstanding common shares of Descap, a New York-based
broker-dealer and investment bank. Per the acquisition
agreement, the Sellers can receive future contingent
consideration (Earnout Payment) based on the
following: for each of the years ending May 31, 2005
through May 31, 2007, if Descaps Pre-Tax Net Income
(as defined) (i) is greater than $10 million, the
Company shall pay to the Sellers an aggregate amount equal to
fifty percent (50%) of Descaps Pre-Tax Net Income for such
period, or (ii) is equal to or less than $10 million,
the Company shall pay to the Sellers an aggregate amount equal
to forty percent (40%) of Descaps Pre-Tax Net Income for
such period. Each Earnout Payment shall be paid in cash,
provided that the Buyer shall have the right to pay up to
seventy-five percent (75%) of each Earnout Payment in the form
of shares of Company Stock. The amount of any Earnout Payment
that the Company elects to pay in the form of Company Stock
shall not exceed $3.0 million for any Earnout Period and in
no event shall such amounts exceed $6.0 million in the
aggregate for all Earnout Payments. Based upon Descaps
Pre-Tax Net Income from June 1, 2005 through May 31,
2006, $1.0 million of contingent consideration has been
accrued at December 31, 2006. Also,
D-53
based upon Descaps pre-tax net income from June 1,
2006 to December 31, 2006, no contingent consideration
would be payable to the sellers.
Legal
Proceedings
From time to time the Company and its subsidiaries are involved
in legal proceedings or disputes. (See Part I
Item 3 Legal Proceedings). An adverse result or
development in respect of these matters, whether in settlement
or as a result of litigation or arbitration, could materially
adversely affect the Companys consolidated financial
condition, results of operations, cash flows and liquidity.
In the ordinary course of business, the Company is called upon
from time to time to answer inquiries and subpoenas on a number
of different issues by self-regulatory organizations, the SEC
and various state securities regulators. In recent years, there
has been an increased incidence of regulatory enforcement in the
United States involving organizations in the financial services
industry, and the Company is no exception. We are not always
aware of the subject matter of the particular inquiry or the
ongoing status of a particular inquiry. As a result of some of
these inquiries, the Company has been cited for technical
operational deficiencies. Although there can be no assurance as
to the eventual outcome of these proceedings, none of these
inquiries has to date had a material effect upon the business or
operations of the Company.
Letters
of Credit
The Company is contingently liable under bank stand-by letter of
credit agreements, executed in connection with office lease
activities in New York City, totaling $0.2 million at
December 31, 2006. The letter of credit agreements were
collateralized by firm securities with a market value of
$0.2 million at December 31, 2006.
Intangible
Assets
Intangible assets consist predominantly of customer related
intangibles and goodwill related to the acquisitions of the
Institutional Convertible Bond Arbitrage Group (Noddings) and
Descap. These intangible assets were allocated to the reporting
units within the Descap segment and the Institutional
Convertible Bond Arbitrage Group segment pursuant to
SFAS No. 142, Goodwill and Other Intangible
Assets. Goodwill represents the excess cost of a business
acquisition over the fair value of the net assets acquired. In
accordance with SFAS No. 142, indefinite-life
intangible assets and goodwill are not amortized. The Company
reviews its goodwill in order to determine whether its value is
impaired on an annual basis. In addition to annual testing,
goodwill is also tested for impairment at the time of a
triggering event requiring re-evaluation, if one were to occur.
Goodwill is impaired when the carrying amount of the reporting
unit exceeds the implied fair value of the reporting unit. When
available, the Company uses recent, comparable transactions to
estimate the fair value of the respective reporting units. The
Company calculates an estimated fair value based on multiples of
revenues, earnings and book value of comparable transactions.
However, when such comparable transactions are not available or
have become outdated, the Company uses Income and Market
approaches to determine fair value of the reporting unit. The
Income approach applies a discounted cash flow analysis based on
managements projections, while the Market approach
analyzes and compares the operating performance and financial
condition of the reporting unit with those of a group of
selected publicly-traded companies that can be used for
comparison.
As of December 31, 2006, $17.4 million of goodwill and
$0.5 million of amortizable customer intangibles had been
allocated to Descap. As a result of annual impairment testing,
the goodwill related to the acquisition of Descap Securities
Inc., was determined to be impaired. Fair value of the Descap
reporting unit was determined using both the Income and Market
approaches. The valuation gives equal weight to the two
approaches to arrive at the fair value of the reporting unit. As
a result of the valuation, as of December 31, 2006, the
carrying value of goodwill was greater than the implied value of
goodwill resulting in a goodwill impairment loss of
$7.9 million recognized in the caption
Impairment on the Statements of Operations.
On September 28, 2006, a plan to discontinue operations and
classify the Institutional Convertible Bond Arbitrage Group as
held for sale was approved by the Board of Directors, which
triggered a goodwill and disposal group impairment test. Given
the nature of the reporting unit the Income approach was used to
indicate the units fair value. A goodwill impairment loss
of $1.0 million was recognized in discontinued operations
as of
D-54
December 31, 2006. As a result of impairment testing of
the disposal group in accordance with SFAS No. 144
Accounting for the Impairment or Disposal of Long-Lived
Assets, it was determined that amortizable customer
related intangibles were also impaired. An impairment loss of
$0.6 million was recognized related to amortizable
intangible assets in discontinued operations as of
December 31, 2006. The impairment charges recognized in
2006 were equal to the remaining balance of Goodwill and
customer related intangibles that had been previously allocated
to the Institutional Convertible Bond Arbitrage Group (see
Intangible Assets, Including Goodwill note).
Tax
Valuation Allowance
At December 31, 2006, the Company had a valuation allowance
of $21.8 million compared to $9.2 million at
December 31, 2005. The valuation allowance was established
as a result of weighing all positive and negative evidence,
including the Companys history of cumulative losses over
at least the past three years and the difficulty of forecasting
future taxable income. As a result, the Company does not
anticipate that the payment of future taxes will have a
significant negative impact on its liquidity and capital
resources (see Income Tax Note).
CONTRACTUAL
OBLIGATIONS
The following table sets forth these contractual obligations by
fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In thousands of dollars)
|
|
|
Short-term bank loans
|
|
$
|
128,525
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
128,525
|
|
Long term debt(1)
|
|
|
2,857
|
|
|
|
2,857
|
|
|
|
2,857
|
|
|
|
2,857
|
|
|
|
1,239
|
|
|
|
|
|
|
|
12,667
|
|
Purchase obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
(including interest)
|
|
|
1,599
|
|
|
|
999
|
|
|
|
676
|
|
|
|
460
|
|
|
|
213
|
|
|
|
11
|
|
|
|
3,958
|
|
Operating leases (net of sublease
rental income)(2)
|
|
|
6,468
|
|
|
|
5,213
|
|
|
|
2,722
|
|
|
|
2,338
|
|
|
|
2,266
|
|
|
|
6,416
|
|
|
|
25,423
|
|
Guaranteed compensation payments(3)
|
|
|
8,580
|
|
|
|
2,280
|
|
|
|
1,265
|
|
|
|
461
|
|
|
|
|
|
|
|
|
|
|
|
12,586
|
|
Partnership and employee
investment funds commitments(4)
|
|
|
4,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,100
|
|
Subordinated debt(5)
|
|
|
1,462
|
|
|
|
1,299
|
|
|
|
465
|
|
|
|
287
|
|
|
|
108
|
|
|
|
803
|
|
|
|
4,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
153,591
|
|
|
$
|
12,648
|
|
|
$
|
7,985
|
|
|
$
|
6,403
|
|
|
$
|
3,826
|
|
|
$
|
7,230
|
|
|
$
|
191,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company has a note payable which has principal payments
associated with each (see Notes to the Consolidated
Financial Statements). |
|
|
|
(2) |
|
The Companys headquarters and sales offices are leased
under non-cancelable leases, certain of which contain escalation
clauses and which expire at various times through 2014 (see
Notes to the Consolidated Financial Statements). |
|
|
|
(3) |
|
Guaranteed compensation payments includes various compensation
arrangements. |
|
|
|
(4) |
|
The Company has a commitment to invest in FA Technology Ventures
LP (the Partnership) and an additional commitment to
invest in funds that invest in parallel with the Partnership
(see Notes to the Consolidated Financial Statements). |
|
|
|
(5) |
|
A select group of management and highly compensated employees
are eligible to participate in the First Albany Companies Inc.
Deferred Compensation Plan for Key Employees (the
Plan). The employees enter into subordinate loans
with the Company to provide for the deferral of compensation and
employer allocations under the Plan. The accounts of the
participants of the Plan are credited with earnings and/or
losses based on the performance of various investment benchmarks
selected by the participants. Maturities of the subordinated
debt are based on the distribution election made by each
participant, which may be deferred to a later date by the |
D-55
|
|
|
|
|
participant. As of February 28, 2007, the Company no
longer permits any new amounts to be deferred under the Plan. |
RESTRUCTURING
During 2004, the Company undertook an internal review of its
operations in an effort to reduce costs. One of the results of
this review was the streamlining of certain functions and a
reduction in personnel. The reduction in personnel was initiated
during the period ended September 30, 2004 and was
completed by December 31, 2004. The Company incurred
restructuring expenses of approximately $1.3 million
related to this effort, which were accrued and expensed and
substantially paid in 2004. The natures of these costs are
compensation and benefits and the amount expensed through 2004
relates to employees who were terminated by December 31,
2004. Restructuring costs were allocated 85% to the
Companys Other segment, with the remainder
allocated among the other business units for segment reporting
purposes.
CRITICAL
ACCOUNTING POLICIES
The following is a summary of the Companys critical
accounting policies. For a full description of these and other
accounting policies, see Significant Accounting
Policies note of the Consolidated Financial Statements.
The Company believes that of its significant accounting
policies, those described below involve a high degree of
judgment and complexity. These critical accounting policies
require estimates and assumptions that affect the amounts of
assets, liabilities, revenues and expenses reported in the
consolidated financial statements. Due to their nature,
estimates involve judgment based upon available information.
Actual results or amounts could differ from estimates and the
difference could have a material impact on the consolidated
financial statements. Therefore, understanding these policies is
important in understanding the reported results of operations
and the financial position of the Company.
Valuation
of Securities and Other Assets
Substantially all financial instruments are reflected in the
consolidated financial statements at fair value or amounts that
approximate fair value, including cash, securities purchased
under agreements to resell, securities owned, investments and
securities sold but not yet purchased. Unrealized gains and
losses related to these financial instruments are reflected in
net income/(loss). Where available, the Company uses prices from
independent sources such as listed market prices, or broker or
dealer price quotations. Where the value of a security is
derived from an independent market price or broker or dealer
quote, certain assumptions may be required to determine the fair
value. For example, the Company generally assumes that the size
of positions in securities that the Company holds would not be
large enough to affect the quoted price of the securities if the
Company were to sell them, and that any such sale would happen
in an orderly manner. However, these assumptions may be
incorrect and the actual value realized upon disposition could
be different from the current carrying value. For investments in
illiquid and privately held securities that do not have readily
determinable fair values, the Companys estimate of fair
value is generally reflected as our original cost basis unless
the investee has raised additional debt or equity capital, and
we believe that such a transaction, taking into consideration
differences in the terms of securities, is a better indicator of
fair value; or we believe the fair value is less than our
original cost basis. All of our investments are evaluated
quarterly for changes in fair value. Factors that have an impact
on our analysis include subjective assessments about a fair
market valuation of the investee, including but not limited to
assumptions regarding the expected future financial performance
of the investee and our assessment of the future prospects of
the investees business model. Securities owned and
investments include, at December 31, 2006 and 2005,
$11.2 million and $10.0 million, respectively, of
private equity securities.
Intangible
Assets
Intangible assets consist predominantly of customer related
intangibles and goodwill related to the acquisitions of the
Institutional Convertible Bond Arbitrage Advisory Group and
Descap. These intangible assets were allocated to the reporting
units within the Descap segment and the Institutional
Convertible Bond Arbitrage Advisory Group segment pursuant to
SFAS No. 142, Goodwill and Other Intangible
Assets. Goodwill represents the excess cost of a business
acquisition over the fair value of the net assets acquired. In
accordance with SFAS No. 142, indefinite-life
D-56
intangible assets and goodwill are not amortized. The Company
reviews its goodwill in order to determine whether its value is
impaired on an annual basis. In addition to annual testing,
goodwill is also tested for impairment at the time of a
triggering event requiring re-evaluation, if one were to occur.
Goodwill is impaired when the carrying amount of the reporting
unit exceeds the implied fair value of the reporting unit. When
available, the Company uses recent, comparable transactions to
estimate the fair value of the respective reporting units. The
Company calculates an estimated fair value based on multiples of
revenues, earnings and book value of comparable transactions.
However, when such comparable transactions are not available or
have become outdated, the Company uses Income and Market
approaches to determine fair value of the reporting unit. The
Income approach applies a discounted cash flow analysis based on
managements projections, while the Market approach
analyzes and compares the operating performance and financial
condition of the reporting unit with those of a group of
selected publicly-traded companies that can be used for
comparison.
Contingent
Liabilities
The Company is subject to contingent liabilities, including
judicial, regulatory and arbitration proceedings, tax and other
claims. The Company records reserves related to legal and other
claims in accrued expenses. The determination of
these reserve amounts requires significant judgment on the part
of management. Management considers many factors including, but
not limited to: the amount of the claim; the amount of the loss,
if any incurred by the other party, the basis and validity of
the claim; the possibility of wrongdoing on the part of the
Company; likely insurance coverage; previous results in similar
cases; and legal precedents and case law. Each legal proceeding
is reviewed with counsel in each accounting period and the
reserve is adjusted as deemed appropriate by management. Any
change in the reserve amount is recorded in the consolidated
financial statements and is recognized as a charge/credit to
earnings in that period. The assumptions of management in
determining the estimates of reserves may prove to be incorrect,
which could materially affect results in the period the expenses
are ultimately determined.
Refer to Item 7, Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources for
details on the liability for contingent consideration related to
the acquisition of Descap.
Risk
and Uncertainties
The Company also records reserves or allowances for doubtful
accounts related to receivables. Receivables at the
broker/dealers are generally collateralized by securities owned
by the brokerage clients. Therefore, when a receivable is
considered to be impaired, the amount of the impairment is
generally measured based on the fair value of the securities
acting as collateral, which is measured based on current prices
from independent sources such as listed market prices or
broker/dealer price quotations.
The Company also makes loans or pays advances to employees for
recruiting and retention purposes. The Company provides for a
specific reserve on these receivables if the employee is no
longer associated with the Company and it is determined that it
is probable the amount will not be collected. At
December 31, 2006, the receivable from employees for
recruiting and retention purposes was $0.5 million.
Income
Taxes
Income tax expense is recorded using the asset and liability
method. Deferred tax assets and liabilities are recognized for
the expected future tax consequences attributable to temporary
differences between amounts reported for income tax purposes and
financial statement purposes, using current tax rates. A
valuation allowance is recognized if it is anticipated that some
or all of a deferred tax asset will not be realized.
The Company must assess the likelihood that its deferred tax
assets will be recovered from future taxable income and, to the
extent that the Company believes that recovery is not likely, it
must establish a valuation allowance. Significant management
judgment is required in determining our provision for income
taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. The
Company has recorded a valuation allowance as a result of
uncertainties related to the realization of its net deferred tax
asset, at December 31, 2006, of approximately
$21.7 million. The valuation allowance was established as a
D-57
result of weighing all positive and negative evidence,
including the Companys history of cumulative losses over
the past two years and the difficulty of forecasting future
taxable income. The valuation allowance reflects the conclusion
of management that it is more likely than not that the benefit
of the deferred tax assets will not be realized.
In the event actual results differ from these estimates or we
adjust these estimates in future periods, we may need to adjust
our valuation allowance which could materially impact our
financial position and results of operations.
Securities
Issued for Services
Options: The Company has stock
option plans under which incentive and nonqualified stock
options may be granted periodically to certain employees. The
options are granted at an exercise price equal to the fair value
of the underlying shares at the date of grant, they generally
vest over one to three years following the date of grant, and
they have a term of ten years.
The Company adopted the recognition provisions of FAS 123
effective January 1, 2003 using the prospective method of
transition described in FAS 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. Under
the fair value recognition provisions of FAS 123 and
FAS 148, stock-based compensation cost is measured at the
grant date based on the Black-Scholes value of the award and is
recognized as expense over the vesting period for awards granted
after December 31, 2002. For options granted prior to
December 31, 2002, the fair value of options granted was
not required to be recognized as an expense in the consolidated
financial statements.
Effective January 1, 2006, the Company adopted
FAS 123(R). In adopting FAS 123(R), the Company
applied the modified prospective application transition method.
Under the modified prospective application method, prior period
financial statements are not adjusted. Instead, the Company will
apply FAS 123(R) for new awards granted after
December 31, 2005, any portion of awards that were granted
after January 1, 1995 and have not vested by
January 1, 2006 and any outstanding liability awards.
The Black-Scholes option pricing model is used to determine the
fair value of stock options. This option pricing model has
certain limitations, such as not factoring in the
non-transferability of employee options, and is generally used
to value options with terms shorter than the contractual
ten-year life of our awards. Because of these limitations, and
the use of highly subjective assumptions in the model, this and
other option pricing models do not necessarily provide a
reliable single measure of the fair value of the Companys
stock options. The more significant assumptions used in
estimating the fair value of stock options include the risk-free
interest rate, the dividend yield, the weighted average expected
life of the stock options and the expected price volatility of
the Companys common stock. The risk-free interest rate is
based on U.S. Treasury securities with a term equal to the
expected life of the stock options. The dividend yield is based
on the Companys expected dividend payout level. The
expected life is based on historical experience adjusted for
changes in terms and the amount of awards granted. The expected
volatility, which is the assumption where the most judgment is
used, is based on historical volatility, adjusted to reflect
factors such as significant changes that have occurred in the
Company that lead to a different expectation of future
volatility.
There were no options granted in 2006, thus no Black-Scholes
assumptions were established for 2006. Additional information
related to stock options is presented in the Benefit
Plans note in the Consolidated Financial Statements.
Restricted Stock: Restricted
stock awards, under the plans established by the Company, have
been valued at the market value of the Companys common
stock as of the grant date and are amortized over the period in
which the restrictions are outstanding, which is typically
2-3 years. If an employee reaches retirement age (which per
the plan is age 65), an employee will become 100% vested in
all outstanding restricted stock awards. For those employees who
will reach retirement age prior to the normal vesting date, the
Company will amortize the expense related to those awards over
the shorter period. Unvested restricted stock awards are
typically forfeited upon termination although there are certain
award agreements that may continue to vest subsequent to
termination as long as other restrictions are followed. The
amortization related to unvested restricted stock awards that
continue to vest subsequent to termination is accelerated upon
the employees termination.
D-58
NEW
ACCOUNTING STANDARDS
SFAS No. 157,
Fair Value Measurements
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair Value
Measurements. This statement defines fair value, establishes
a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value
measurements. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after
November 15, 2007. Therefore, SFAS No. 157 will
be effective for our fiscal year beginning January 1, 2008.
The Company is currently evaluating the impact of
SFAS No. 157.
SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115
In February 2007, the Financial Accounting Standards Board
(FASB) issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115. This Statement permits entities to choose to
measure many financial instruments and certain other items at
fair value. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility
in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge
accounting provisions. This Statement is expected to expand the
use of fair value measurement, which is consistent with the
Boards long-term measurement objectives for accounting for
financial instruments. SFAS No. 159 is effective for
financial statements issued for fiscal years beginning after
November 15, 2007. Therefore, SFAS No. 159 will
be effective for our fiscal year beginning January 1, 2008.
The Company is currently evaluating the impact of
SFAS No. 159.
FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes
In July 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN No. 48). FIN No. 48
clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in
accordance with FASB Statement No. 109, Accounting for
Income Taxes. FIN No. 48 prescribes a recognition
threshold and measurement of a tax position taken or expected to
be taken in a tax return. FIN No. 48 also provides
guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and
transition. FIN No. 48 establishes a two-step process
for evaluation of tax positions. The first step is recognition,
under which the enterprise determines whether it is
more-likely-than-not that a tax position will be sustained upon
examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the
position. The enterprise is required to presume the position
will be examined by the appropriate taxing authority that has
full knowledge of all relevant information. The second step is
measurement, under which a tax position that meets the
more-likely-than-not recognition threshold is measured to
determine the amount of benefit to recognize in the financial
statements. The tax position is measured at the largest amount
of benefit that is greater than 50 percent likely of being
realized upon ultimate settlement. FIN No. 48 is
effective for fiscal years beginning after December 15,
2006. Therefore, FIN No. 48 is effective for our
fiscal year beginning January 1, 2007. The cumulative
effect of adopting FIN No. 48 is required to be
reported as an adjustment to the opening balance of retained
earnings (or other appropriate components of equity) for that
fiscal year, presented separately. The Company is currently
analyzing the impact of adopting FIN No. 48. At this
time, the Company does not anticipate that FIN No. 48
will have a significant impact on the financial statements.
Quantitative
and Qualitative Disclosures about Market Risk
MARKET
RISK
Market risk generally represents the risk of loss that may
result from the potential change in the value of a financial
instrument as a result of fluctuations in interest rates and
equity prices, changes in the implied volatility of interest
rates and equity prices and also changes in the credit ratings
of either the issuer or its related country of origin. Market
risk is inherent to both derivative and non-derivative financial
instruments, and accordingly, the scope of the Companys
market risk management procedures extends beyond derivatives to
include all market-risk-
D-59
sensitive financial instruments. The Companys exposure to
market risk is directly related to its role as a financial
intermediary in customer-related transactions and to its
proprietary trading.
The Company trades tax exempt and taxable debt obligations,
including U.S. Treasury bills, notes, and bonds;
U.S. Government agency notes and bonds; bank certificates
of deposit; mortgage-backed securities, and corporate
obligations. The Company is also an active market maker in the
NASDAQ equity markets. In connection with these activities, the
Company may be required to maintain inventories in order to
ensure availability and to facilitate customer transactions. In
connection with some of these activities, the Company attempts
to mitigate its exposure to such market risk by entering into
hedging transactions, which may include highly liquid futures
contracts, options and U.S. Government and federal agency
securities.
The following table categorizes the Companys market risk
sensitive financial instruments by type of security and maturity
date. The amounts shown are net of long and short positions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In thousands of dollars)
|
|
|
Fair value of securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
549
|
|
|
$
|
318
|
|
|
$
|
2,827
|
|
|
$
|
898
|
|
|
$
|
857
|
|
|
$
|
572
|
|
|
$
|
25,357
|
|
|
$
|
31,378
|
|
State and municipal bonds
|
|
|
100
|
|
|
|
1,250
|
|
|
|
355
|
|
|
|
3,056
|
|
|
|
1,384
|
|
|
|
3,165
|
|
|
|
130,475
|
|
|
|
139,785
|
|
US Government and federal agency
obligations
|
|
|
247
|
|
|
|
(1,963
|
)
|
|
|
(6,481
|
)
|
|
|
(650
|
)
|
|
|
(14,989
|
)
|
|
|
986
|
|
|
|
62,350
|
|
|
|
39,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
896
|
|
|
|
(395
|
)
|
|
|
(3,299
|
)
|
|
|
3,304
|
|
|
|
(12,748
|
)
|
|
|
4,723
|
|
|
|
218,182
|
|
|
|
210,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
13,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,384
|
|
Investments
|
|
|
10,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of securities
|
|
$
|
25,146
|
|
|
$
|
(395
|
)
|
|
$
|
(3,299
|
)
|
|
$
|
3,304
|
|
|
$
|
(12,748
|
)
|
|
$
|
4,723
|
|
|
$
|
218,182
|
|
|
$
|
234,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following is a discussion of the Companys primary market
risk exposures as of December 31, 2006, including a
discussion of how those exposures are currently managed.
Interest
Rate Risk
Interest rate risk is a consequence of maintaining inventory
positions and trading in interest-rate-sensitive financial
instruments. These financial instruments include corporate debt
securities, municipal debt securities (including tax-exempt and
taxable), mortgage-backed and asset-backed securities,
convertible securities, government securities and government
agency securities. In connection with trading activities, the
Company exposes itself to interest rate risk, arising from
changes in the level or volatility of interest rates or the
shape and slope of the yield curve. The Companys fixed
income activities also expose it to the risk of loss related to
changes in credit spreads. The Company attempts to hedge its
exposure to interest rate risk primarily through the use of
U.S. Government securities, highly liquid futures and
options designed to reduce the Companys risk profile.
A sensitivity analysis has been prepared to estimate the
Companys exposure to interest rate risk of its net
inventory positions. The fair market value of these securities
included in the Companys inventory at December 31,
2006 was $153.9 million and $183.0 million at
December 31, 2005 (net of municipal futures positions).
Interest rate risk is estimated as the potential loss in fair
value resulting from a hypothetical one-half percent change in
interest rates. At year-end 2006, the potential change in fair
value using a yield to maturity calculation and assuming this
hypothetical change, was $8.3 million and at year-end 2005
it was $6.8 million. The actual risks and results of such
adverse effects may differ substantially.
Equity
Price Risk
The Company is exposed to equity price risk as a consequence of
making markets in equity securities. Equity price risk results
from changes in the level or volatility of equity prices, which
affect the value of equity securities or instruments that derive
their value from a particular stock. The Company attempts to
reduce the risk of loss inherent in its inventory of equity
securities by monitoring those security positions throughout
each day.
D-60
Marketable equity securities included in the Companys
inventory, which were recorded at a fair value of
$13.4 million in securities owned at December 31, 2006
and $11.6 million in securities owned at December 31,
2005, have exposure to equity price risk. This risk is estimated
as the potential loss in fair value resulting from a
hypothetical 10% adverse change in prices quoted by stock
exchanges and amounts to $1.3 million at year-end 2006 and
$1.2 million at year-end 2005. The Companys
investment portfolio excluding the consolidation of Employee
Investment Fund (see Investments note to the
Consolidated Financial Statement) at December 31, 2006 and
2005, had a fair market value of $10.9 million and
$49.9 million, respectively. This equity price risk is also
estimated as the potential loss in fair value resulting from a
hypothetical 10% adverse change in equity security prices or
valuations and amounts to $1.1 million at year-end 2006 and
$5.0 million at year-end 2005. The actual risks and results
of such adverse effects may differ substantially.
CREDIT
RISK
The Company is engaged in various trading and brokerage
activities whose counter parties primarily include
broker-dealers, banks, and other financial institutions. In the
event counter parties do not fulfill their obligations, the
Company may be exposed to risk. The risk of default depends on
the credit worthiness of the counter party or issuer of the
instrument. The Company seeks to control credit risk by
following an established credit approval process, monitoring
credit limits, and requiring collateral where it deems
appropriate.
The Company purchases debt securities and may have significant
positions in its inventory subject to market and credit risk. In
order to control these risks, security positions are monitored
on at least a daily basis. Should the Company find it necessary
to sell such a security, it may not be able to realize the full
carrying value of the security due to the size of the position
sold. The Company attempts to reduce its exposure to changes in
municipal securities valuations with the use as hedges of highly
liquid municipal bond index futures contracts.
OPERATING
RISK
Operating risk is the potential for loss arising from
limitations in the Companys financial systems and
controls, deficiencies in legal documentation and the execution
of legal and fiduciary responsibilities, deficiencies in
technology and the risk of loss attributable to operational
problems. These risks are less direct than credit and market
risk, but managing them is critical, particularly in a rapidly
changing environment with increasing transaction volumes. In
order to reduce or mitigate these risks, the Company has
established and maintains an internal control environment that
incorporates various control mechanisms at different levels
throughout the organization and within such departments as
Finance, Accounting, Operations, Legal, Compliance and Internal
Audit. These control mechanisms attempt to ensure that
operational policies and procedures are being followed and that
the Companys various businesses are operating within
established corporate policies and limits.
OTHER
RISKS
Other risks encountered by the Company include political,
regulatory and tax risks. These risks reflect the potential
impact that changes in local laws, regulatory requirements or
tax statutes have on the economics and viability of current or
future transactions. In an effort to mitigate these risks, the
Company seeks to review new and pending regulations and
legislation and their potential impact on its business. Refer to
Item 1A for other risk factors.
D-61
FIRST
ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION
|
|
|
|
|
|
|
|
|
|
|
June 30
|
|
|
December 31
|
|
As of
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands of dollars)
|
|
|
|
(Unaudited)
|
|
|
ASSETS
|
Cash
|
|
$
|
3,469
|
|
|
$
|
4,192
|
|
Cash and securities segregated for
regulatory purposes
|
|
|
5,100
|
|
|
|
5,200
|
|
Securities purchased under
agreement to resell
|
|
|
9,983
|
|
|
|
14,083
|
|
Receivables from:
|
|
|
|
|
|
|
|
|
Brokers, dealers and clearing
agencies
|
|
|
10,274
|
|
|
|
10,626
|
|
Customers
|
|
|
1,148
|
|
|
|
2,898
|
|
Others
|
|
|
6,242
|
|
|
|
6,933
|
|
Securities owned
|
|
|
247,193
|
|
|
|
276,167
|
|
Investments
|
|
|
13,687
|
|
|
|
12,250
|
|
Office equipment and leasehold
improvements, net
|
|
|
3,912
|
|
|
|
4,516
|
|
Intangible assets, including
goodwill
|
|
|
17,835
|
|
|
|
17,862
|
|
Other assets
|
|
|
4,704
|
|
|
|
2,391
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
323,547
|
|
|
$
|
357,118
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Liabilities
|
|
|
|
|
|
|
|
|
Short-term bank loans
|
|
$
|
139,065
|
|
|
$
|
128,525
|
|
Payables to:
|
|
|
|
|
|
|
|
|
Brokers, dealers and clearing
agencies
|
|
|
27,582
|
|
|
|
49,065
|
|
Customers
|
|
|
449
|
|
|
|
1,151
|
|
Others
|
|
|
9,137
|
|
|
|
8,996
|
|
Securities sold, but not yet
purchased
|
|
|
61,700
|
|
|
|
52,120
|
|
Accounts payable
|
|
|
5,302
|
|
|
|
4,118
|
|
Accrued compensation
|
|
|
12,433
|
|
|
|
32,445
|
|
Accrued expenses
|
|
|
6,951
|
|
|
|
8,273
|
|
Income taxes payable
|
|
|
|
|
|
|
131
|
|
Notes payable
|
|
|
11,238
|
|
|
|
12,667
|
|
Obligations under capitalized
leases
|
|
|
2,796
|
|
|
|
3,522
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
276,653
|
|
|
|
301,013
|
|
|
|
|
|
|
|
|
|
|
Commitments and
Contingencies
|
|
|
|
|
|
|
|
|
Temporary capital
|
|
|
104
|
|
|
|
104
|
|
Subordinated debt
|
|
|
2,962
|
|
|
|
4,424
|
|
|
|
|
|
|
|
|
|
|
Stockholders
Equity
|
|
|
|
|
|
|
|
|
Preferred stock; $1.00 par
value; authorized 500,000 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock; $.01 par value;
authorized 50,000,000 shares; issued 17,669,641 and
17,613,827 respectively
|
|
|
177
|
|
|
|
176
|
|
Additional paid-in capital
|
|
|
155,003
|
|
|
|
152,573
|
|
Deferred compensation
|
|
|
1,710
|
|
|
|
2,647
|
|
Accumulated deficit
|
|
|
(110,678
|
)
|
|
|
(100,605
|
)
|
Treasury stock, at cost
(1,330,244 shares and 1,168,748 shares respectively)
|
|
|
(2,384
|
)
|
|
|
(3,214
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
43,828
|
|
|
|
51,577
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Stockholders Equity
|
|
$
|
323,547
|
|
|
$
|
357,118
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
D-62
FIRST
ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30
|
|
|
June 30
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands of dollars except for per share amounts and
|
|
|
|
shares outstanding)
|
|
|
|
(Unaudited)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions
|
|
$
|
1,269
|
|
|
$
|
3,250
|
|
|
$
|
3,022
|
|
|
$
|
6,721
|
|
Principal transactions
|
|
|
9,492
|
|
|
|
17,686
|
|
|
|
18,348
|
|
|
|
34,048
|
|
Investment banking
|
|
|
8,882
|
|
|
|
18,640
|
|
|
|
16,472
|
|
|
|
30,364
|
|
Investment gains (losses)
|
|
|
266
|
|
|
|
1,196
|
|
|
|
505
|
|
|
|
(4,947
|
)
|
Interest
|
|
|
4,046
|
|
|
|
3,764
|
|
|
|
7,609
|
|
|
|
6,943
|
|
Fees and other
|
|
|
457
|
|
|
|
815
|
|
|
|
912
|
|
|
|
1,433
|
|
Total revenues
|
|
|
24,412
|
|
|
|
45,351
|
|
|
|
46,868
|
|
|
|
74,562
|
|
Interest expense
|
|
|
4,311
|
|
|
|
4,178
|
|
|
|
8,065
|
|
|
|
8,409
|
|
Net revenues
|
|
|
20,101
|
|
|
|
41,173
|
|
|
|
38,803
|
|
|
|
66,153
|
|
Expenses (excluding
interest):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
16,365
|
|
|
|
33,568
|
|
|
|
30,918
|
|
|
|
59,864
|
|
Clearing, settlement and brokerage
costs
|
|
|
911
|
|
|
|
1,732
|
|
|
|
2,164
|
|
|
|
3,376
|
|
Communications and data processing
|
|
|
2,551
|
|
|
|
2,932
|
|
|
|
5,313
|
|
|
|
5,791
|
|
Occupancy and depreciation
|
|
|
1,938
|
|
|
|
2,270
|
|
|
|
3,966
|
|
|
|
5,055
|
|
Selling
|
|
|
1,253
|
|
|
|
1,576
|
|
|
|
2,460
|
|
|
|
3,364
|
|
Other
|
|
|
1,325
|
|
|
|
2,543
|
|
|
|
3,025
|
|
|
|
4,322
|
|
Total expenses (excluding interest)
|
|
|
24,343
|
|
|
|
44,621
|
|
|
|
47,846
|
|
|
|
81,772
|
|
Loss before income taxes
|
|
|
(4,242
|
)
|
|
|
(3,448
|
)
|
|
|
(9,043
|
)
|
|
|
(15,619
|
)
|
Income tax (benefit) expense
|
|
|
149
|
|
|
|
|
|
|
|
149
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(4,391
|
)
|
|
|
(3,448
|
)
|
|
|
(9,192
|
)
|
|
|
(15,619
|
)
|
Loss from discontinued operations,
(net of taxes) (see Discontinued Operations note)
|
|
|
(587
|
)
|
|
|
(2,726
|
)
|
|
|
(248
|
)
|
|
|
(3,200
|
)
|
Loss before cumulative effect of
change in accounting principle
|
|
|
(4,978
|
)
|
|
|
(6,174
|
)
|
|
|
(9,440
|
)
|
|
|
(18,819
|
)
|
Cumulative effect of accounting
change, (net of taxes $0 in 2006) (see Benefit Plans
note)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,978
|
)
|
|
$
|
(6,174
|
)
|
|
$
|
(9,440
|
)
|
|
$
|
(18,392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.28
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(1.02
|
)
|
Discontinued operations
|
|
|
(0.04
|
)
|
|
|
(0.18
|
)
|
|
|
(0.02
|
)
|
|
|
(0.21
|
)
|
Cumulative effect of accounting
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.32
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.61
|
)
|
|
$
|
(1.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(0.28
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(1.02
|
)
|
Discontinued operations
|
|
|
(0.04
|
)
|
|
|
(0.18
|
)
|
|
|
(0.02
|
)
|
|
|
(0.21
|
)
|
Cumulative effect of accounting
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.32
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.61
|
)
|
|
$
|
(1.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and common
equivalent shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
15,712,598
|
|
|
|
15,402,424
|
|
|
|
15,609,260
|
|
|
|
15,390,043
|
|
Diluted
|
|
|
15,712,598
|
|
|
|
15,402,424
|
|
|
|
15,609,260
|
|
|
|
15,390,043
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
D-63
FIRST
ALBANY COMPANIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands of dollars)
|
|
|
|
(Unaudited)
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(9,440
|
)
|
|
$
|
(18,392
|
)
|
Adjustments to reconcile net
loss to net cash (used in) provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
925
|
|
|
|
1,261
|
|
Amortization of warrants
|
|
|
|
|
|
|
498
|
|
Deferred compensation
|
|
|
63
|
|
|
|
186
|
|
Unrealized investment
(gains)/losses
|
|
|
(629
|
)
|
|
|
15,129
|
|
Realized losses (gains) on sale of
investments
|
|
|
124
|
|
|
|
(10,182
|
)
|
Loss on sale of fixed assets,
including termination of office lease
|
|
|
|
|
|
|
(20
|
)
|
Services provided in exchange for
common stock
|
|
|
2,139
|
|
|
|
3,536
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Cash and securities segregated for
regulatory purposes
|
|
|
100
|
|
|
|
1,300
|
|
Securities purchased under
agreement to resell
|
|
|
4,100
|
|
|
|
5,489
|
|
Net receivables from customers
|
|
|
1,048
|
|
|
|
3,722
|
|
Securities owned, net
|
|
|
38,607
|
|
|
|
(5,144
|
)
|
Other assets
|
|
|
(2,313
|
)
|
|
|
(88
|
)
|
Net payable to brokers, dealers
and clearing agencies
|
|
|
(21,131
|
)
|
|
|
15,603
|
|
Net payables to others
|
|
|
878
|
|
|
|
(2,936
|
)
|
Accounts payable and accrued
expenses
|
|
|
(20,719
|
)
|
|
|
1,744
|
|
Income taxes payable, net
|
|
|
(131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
operating activities
|
|
|
(6,379
|
)
|
|
|
11,706
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
Acquisition of Descap Securities
(see Temporary Capital note)
|
|
|
|
|
|
|
(3,270
|
)
|
Purchases of office equipment and
leasehold improvements
|
|
|
(236
|
)
|
|
|
(2,409
|
)
|
Sale of office equipment and
leasehold improvements
|
|
|
|
|
|
|
5,051
|
|
Purchases of investments
|
|
|
(1,437
|
)
|
|
|
(2,174
|
)
|
Proceeds from sale of investments
|
|
|
208
|
|
|
|
12,752
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
investing activities
|
|
|
(1,465
|
)
|
|
|
9,950
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds of short-term bank loans,
net
|
|
|
10,540
|
|
|
|
2,875
|
|
Proceeds of notes payable
|
|
|
|
|
|
|
9,025
|
|
Payments of notes payable
|
|
|
(1,429
|
)
|
|
|
(25,346
|
)
|
Payments of obligations under
capitalized leases
|
|
|
(726
|
)
|
|
|
(906
|
)
|
Proceeds from subordinated debt
|
|
|
|
|
|
|
159
|
|
Payment of subordinated debt
|
|
|
(1,462
|
)
|
|
|
(1,288
|
)
|
Proceeds from issuance of common
stock under stock option plans
|
|
|
|
|
|
|
55
|
|
Payments for purchases of treasury
stock
|
|
|
|
|
|
|
(334
|
)
|
Net increase (decrease) in drafts
payable
|
|
|
198
|
|
|
|
(3,325
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
7,121
|
|
|
|
(19,085
|
)
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
(723
|
)
|
|
|
2,571
|
|
Cash at beginning of the period
|
|
|
4,192
|
|
|
|
1,926
|
|
|
|
|
|
|
|
|
|
|
Cash at the end of the period
|
|
$
|
3,469
|
|
|
$
|
4,497
|
|
|
|
|
|
|
|
|
|
|
D-64
Non-Cash
Investing and Financing Activities
During the first six months of 2007 and 2006, the Company
entered into capital leases for office and computer equipment
totaling approximately $0 million and $0.2 million,
respectively.
During the first six months of 2007 and 2006, the Company
converted $0.0 million and $0.2 million, respectively
of accrued compensation to subordinated debt.
During the six months ended June 30, 2007 the Company
recorded a liability of $0.9 million related to the
cumulative effect of adopting FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes. Refer to
Income Taxes note for further details.
Refer to Benefit Plans note for non-cash financing
activities related to restricted stock.
Refer to the Investments note for non-cash investing
activities related to the Employee Investment Funds.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
D-65
FIRST
ALBANY COMPANIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all normal,
recurring adjustments necessary for a fair statement of results
for such periods. The results for any interim period are not
necessarily indicative of those for the full year. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the United States of America
have been omitted. These unaudited condensed consolidated
financial statements should be read in conjunction with the
audited consolidated financial statements and notes for the year
ended December 31, 2006.
|
|
2.
|
Liquidity
and Net Capital
|
The Company has experienced recurring losses and as of
June 30, 2007, the Company had cash of approximately
$3.5 million and working capital of approximately
$17 million. As a result of continuing losses that have
impacted the Companys liquidity and net capital, and in
order to recapitalize and reposition itself, the Company has
entered into an asset sale agreement with DEPFA Bank PLC
(DEPFA)for the sale of the Municipal Capital Markets
Group of the Companys subsidiary, First Albany Capital
Inc. (First Albany Capital) for $12 million.
The Company has also entered into an investment agreement with
an affiliate of MatlinPatterson Global Opportunities
Partners II to receive a $50 million equity investment
(see Commitments and Contingencies note). The
Company believes that the proceeds from these transactions will
provide the Company with resources to invest in future growth,
build on its investment product and services strengths, and
better meet the needs of its clients. If these transactions are
not completed, the Company may be forced to preserve its cash
position through a combination of cost reduction measures and
sales of assets at values that may be significantly below their
potential worth or augment our cash through additional dilutive
financings, and there can be no assurance that we could obtain
funds on terms that are as favorable as the terms of these
transactions or at all.
Certain 2006 amounts on the Condensed Consolidated Statements of
Operations have been reclassified to conform to the 2007
presentation. Expenses of $0.3 million and
$0.7 million for the three and six months ended
June 30, 2006 related to investment banking business
development were reclassified to Selling expense from Investment
banking revenue. The reclassification results in investment
banking revenue being recorded net of related un-reimbursed
expenses while un-reimbursed expenses which have no related
revenue are presented as a component of selling expense.
|
|
4.
|
Earnings
Per Common Share
|
The Company calculates its basic and diluted earnings per shares
in accordance with Statement of Financial Accounting Standards
No. 128, Earnings Per Share. Basic earnings per
share are computed based upon weighted-average shares
outstanding. Dilutive earnings per share is computed
consistently with basic while giving effect to all dilutive
potential common shares that were outstanding during the period.
The Company uses the treasury stock method to reflect the
potential dilutive effect of unvested stock awards, warrants,
unexercised options and any contingently issued shares (see
Temporary Capital note). The weighted-average shares
outstanding were calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30
|
|
|
June 30
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Weighted average shares for basic
earnings per share
|
|
|
15,712,598
|
|
|
|
15,402,424
|
|
|
|
15,609,260
|
|
|
|
15,390,043
|
|
Effect of dilutive common
equivalent shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares and
dilutive common stock equivalents for diluted earnings per share
|
|
|
15,712,598
|
|
|
|
15,402,424
|
|
|
|
15,609,260
|
|
|
|
15,390,043
|
|
D-66
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the three months and six months ended June 30, 2007,
the Company excluded approximately 0.2 million and
0.3 million common stock equivalents, respectively, in its
computation of diluted earnings per share because they were
anti-dilutive. Also, for the three months and six months ended
June 30, 2006, the Company excluded approximately
0.4 million and 0.3 million common stock equivalents,
respectively, in its computation of diluted earnings per share
because they were anti-dilutive. In addition, at June 30,
2007 and June 30, 2006, approximately 0.8 million and
2.0 million shares of restricted stock awards (see
Benefit Plans note) which are included in shares
outstanding are not included in the basic earnings per share
computation because they are not vested as of June 30, 2007
and June 30, 2006, respectively.
|
|
5.
|
Receivables
from and Payables to Brokers, Dealers and Clearing
Agencies
|
Amounts receivable from and payable to brokers, dealers and
clearing agencies consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands of dollars)
|
|
|
Adjustment to record securities
owned on a trade date basis, net
|
|
$
|
1,944
|
|
|
$
|
|
|
Securities borrowed
|
|
|
|
|
|
|
455
|
|
Securities failed-to-deliver
|
|
|
2,679
|
|
|
|
3,841
|
|
Commissions receivable
|
|
|
1,080
|
|
|
|
2,146
|
|
Receivable from clearing
organizations
|
|
|
4,571
|
|
|
|
4,184
|
|
|
|
|
|
|
|
|
|
|
Total receivables
|
|
$
|
10,274
|
|
|
$
|
10,626
|
|
|
|
|
|
|
|
|
|
|
Adjustment to record securities
owned on a trade date basis, net
|
|
$
|
|
|
|
$
|
2,173
|
|
Payable to clearing organizations
|
|
|
26,894
|
|
|
|
43,807
|
|
Securities failed-to-receive
|
|
|
688
|
|
|
|
3,085
|
|
|
|
|
|
|
|
|
|
|
Total payables
|
|
$
|
27,582
|
|
|
$
|
49,065
|
|
|
|
|
|
|
|
|
|
|
Proprietary securities transactions are recorded on the trade
date, as if they had settled. The related amounts receivable and
payable for unsettled securities transactions are recorded net
in receivables or payables to brokers, dealers and clearing
agencies on the unaudited condensed consolidated statements of
financial condition.
|
|
6.
|
Receivables
from and Payables to Customers
|
At June 30, 2007, receivables from customers are mainly
comprised of the purchase of securities by institutional
clients. Delivery of these securities is made only when the
Company is in receipt of the funds from the institutional
clients.
The majority of the Companys non-institutional customers
securities transactions, including those of officers, directors,
employees and related individuals, are cleared through a third
party under a clearing agreement. Under this agreement, the
clearing agent executes and settles customer securities
transactions, collects margin receivables related to these
transactions, monitors the credit standing and required margin
levels related to these customers and, pursuant to margin
guidelines, requires the customer to deposit additional
collateral with them or to reduce positions, if necessary. In
the event the customer is unable to fulfill its contractual
obligations, the clearing agent may purchase or sell the
financial instrument underlying the contract, and as a result
may incur a loss.
If the clearing agent incurs a loss, it has the right to pass
the loss through to the Company which, as a result, exposes the
Company to off-balance-sheet risk. The Company has retained the
right to pursue collection or performance from customers who do
not perform under their contractual obligations and monitors
customer balances on a daily basis along with the credit
standing of the clearing agent. As the potential amount of
losses during the term of this contract has no maximum, the
Company believes there is no maximum amount assignable to
D-67
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
this indemnification. At June 30, 2007, substantially all
customer obligations were fully collateralized and the Company
has not recorded a liability related to the clearing
agents right to pass losses through to the Company.
|
|
7.
|
Securities
Owned and Sold, but Not Yet Purchased
|
Securities owned and sold, but not yet purchased consisted of
the following at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
December 31, 2006
|
|
|
|
|
|
|
Sold, but
|
|
|
|
|
|
Sold, but
|
|
|
|
|
|
|
not yet
|
|
|
|
|
|
not yet
|
|
|
|
Owned
|
|
|
Purchased
|
|
|
Owned
|
|
|
Purchased
|
|
|
|
(In thousands of dollars)
|
|
|
Marketable Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
obligations
|
|
$
|
73,820
|
|
|
$
|
58,607
|
|
|
$
|
90,652
|
|
|
$
|
51,393
|
|
State and municipal bonds
|
|
|
142,798
|
|
|
|
2,848
|
|
|
|
139,811
|
|
|
|
26
|
|
Corporate obligations
|
|
|
25,587
|
|
|
|
|
|
|
|
31,146
|
|
|
|
84
|
|
Corporate stocks
|
|
|
3,723
|
|
|
|
245
|
|
|
|
12,989
|
|
|
|
456
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
258
|
|
|
|
161
|
|
Not Readily Marketable
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities with no publicly quoted
market
|
|
|
724
|
|
|
|
|
|
|
|
1,008
|
|
|
|
|
|
Securities subject to restrictions
|
|
|
541
|
|
|
|
|
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
247,193
|
|
|
$
|
61,700
|
|
|
$
|
276,167
|
|
|
$
|
52,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
8.
|
Intangible
Assets, Including Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Impairment
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Loss
|
|
|
Value
|
|
|
|
(In thousands of dollars)
|
|
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer related (amortizable):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Descap Securities,
Inc. Acquisition
|
|
$
|
641
|
|
|
$
|
(170
|
)
|
|
$
|
|
|
|
$
|
471
|
|
Institutional convertible bond
arbitrage group Acquisition
|
|
|
1,017
|
|
|
|
(382
|
)
|
|
|
(635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,658
|
|
|
|
(552
|
)
|
|
|
(635
|
)
|
|
|
471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill (unamortizable):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Descap Securities,
Inc. Acquisition
|
|
|
25,250
|
|
|
|
|
|
|
|
(7,886
|
)
|
|
|
17,364
|
|
Institutional convertible bond
arbitrage group Acquisition
|
|
|
964
|
|
|
|
|
|
|
|
(964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,214
|
|
|
|
|
|
|
|
(8,850
|
)
|
|
|
17,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets
|
|
$
|
27,872
|
|
|
$
|
(552
|
)
|
|
$
|
(9,485
|
)
|
|
$
|
17,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of annual impairment testing, the goodwill related
to the acquisition of Descap Securities, Inc.
(Descap) was determined to be impaired as of
December 31, 2006. Fair value of the Descap reporting unit
was
D-68
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
determined using both the income and market approaches. The
income approach determines fair value using a discounted cash
flow analysis based on managements projections. The market
approach analyzes and compares the operations performance and
financial conditions of the reporting unit with those of a group
of selected publicly-traded companies that can be used for
comparison. The valuation gives equal weight to the two
approaches to arrive at the fair value of the reporting unit. As
a result of the valuation, as of December 31, 2006, the
carrying value of goodwill was greater than the implied value of
goodwill resulting in a goodwill impairment loss of
$7.9 million recognized in the caption
Impairment on the Statements of Operations for the
year ended December 31, 2006.
A plan approved by the Board of Directors on September 28,
2006 to discontinue operations of the Institutional Convertible
Bond Arbitrage Advisory Group (the Group) triggered
an impairment test in the third quarter of 2006 in accordance
with SFAS No. 142 Goodwill and Other Intangible
Assets. The value of the Group is more dependent on their
ability to generate earnings than on the value of the assets
used in operations, therefore fair value of the Group was
determined using the income approach. The income approach
determines fair value using a discounted cash flow analysis
based on managements projections. Based on the impairment
test, a goodwill impairment loss of $1.0 was recognized in
discontinued operations for the year ended December 31,
2006. As a result of impairment testing of the disposal group in
accordance with SFAS No. 144 Accounting for the
Impairment or Disposal of Long-Lived Assets, it was
determined that amortizable customer related intangibles were
also impaired. An impairment loss of $0.6 million was
recognized related to amortizable intangible assets in
discontinued operations for the year ended December 31,
2006. The Group ceased operations in April 2007.
Customer related intangible assets are being amortized over
12 years. The Company has recognized $27 thousand of
amortization expense year to date as of June 30, 2007,
future amortization expense is estimated as follows:
|
|
|
|
|
|
|
(In thousands of
|
|
|
|
dollars)
|
|
|
2007 (remaining)
|
|
$
|
26
|
|
2008
|
|
|
53
|
|
2009
|
|
|
53
|
|
2010
|
|
|
53
|
|
2011
|
|
|
53
|
|
2012
|
|
|
53
|
|
Thereafter
|
|
|
180
|
|
|
|
|
|
|
Total
|
|
$
|
471
|
|
|
|
|
|
|
The Companys investment portfolio includes interests in
privately held companies. Information regarding these
investments has been aggregated and is presented below.
|
|
|
|
|
|
|
|
|
|
|
June 30
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands of dollars)
|
|
|
Carrying Value
|
|
|
|
|
|
|
|
|
Private
|
|
$
|
12,403
|
|
|
$
|
10,866
|
|
Consolidation of Employee
Investment Funds, net of Companys ownership interest
|
|
|
1,284
|
|
|
|
1,384
|
|
|
|
|
|
|
|
|
|
|
Total carrying value
|
|
$
|
13,687
|
|
|
$
|
12,250
|
|
|
|
|
|
|
|
|
|
|
D-69
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Investment gains (losses) were comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Three Months Ended
|
|
|
Ended
|
|
|
|
June 30
|
|
|
June 30
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands of dollars)
|
|
|
Public (net realized and
unrealized gains and losses)
|
|
$
|
|
|
|
$
|
(3,961
|
)
|
|
$
|
|
|
|
$
|
(9,991
|
)
|
Private (net realized and
unrealized gains and losses)
|
|
|
266
|
|
|
|
5,157
|
|
|
|
505
|
|
|
|
5,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment gains (losses)
|
|
$
|
266
|
|
|
$
|
1,196
|
|
|
$
|
505
|
|
|
$
|
(4,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys public investment losses as of June 30,
2006 consisted of investments in iRobot and Mechanical
Technology Incorporated which were completely liquidated during
the year ended December 31, 2006. Privately held
investments include an investment of $11.8 million in FA
Technology Ventures L.P. (the Partnership), which
represented the Companys maximum exposure to loss in the
Partnership at June 30, 2007. The Partnerships
primary purpose is to provide investment returns consistent with
the risk of investing in venture capital. At June 30, 2007
total Partnership capital for all investors in the Partnership
equaled $46.4 million. The Partnership is considered a
variable interest entity. The Company is not the primary
beneficiary, due to other investors level of investment in
the Partnership. Accordingly, the Company has not consolidated
the Partnership in these financial statements, but has only
recorded the value of its investment. FA Technology Ventures
Inc. (FATV), a wholly-owned subsidiary, is the
investment advisor for the Partnership. Revenues derived from
the management of this investment and the Employee Investment
Funds for the six-month period ended June 30, 2007 and 2006
were $0.5 million and $0.9 million in consolidation,
respectively.
The Company has consolidated its Employee Investment Funds
(EIF). The EIF are limited liability companies,
established by the Company for the purpose of having select
employees invest in private equity securities. The EIF is
managed by FAC Management Corp., a wholly-owned subsidiary,
which has contracted with FATV to act as an investment advisor
with respect to funds invested in parallel with the Partnership.
The Companys carrying value of this EIF is
$0.3 million excluding the effects of consolidation. The
Company has outstanding loans of $0.3 million from the EIF
and is also committed to loan an additional $0.2 million to
the EIF. The effect of consolidation was to increase Investments
by $1.3 million, decrease Receivable from Others by
$0.3 million and increase Payable to Others by
$1.0 million. The amounts in Payable to Others relates to
the value of the EIF owned by employees.
Amounts payable to others consisted of the following at:
|
|
|
|
|
|
|
|
|
|
|
June 30
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands of dollars)
|
|
|
Drafts payable
|
|
$
|
6,140
|
|
|
$
|
5,942
|
|
Payable to Employees for the
Employee Investment Funds (see Investments footnote)
|
|
|
982
|
|
|
|
1,039
|
|
Payable to Sellers of Descap
Securities, Inc. (see Commitments and Contingencies
footnote)
|
|
|
1,036
|
|
|
|
1,036
|
|
Others
|
|
|
979
|
|
|
|
979
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,137
|
|
|
$
|
8,996
|
|
|
|
|
|
|
|
|
|
|
The Company maintains a group of zero-balance bank
accounts which are included in payables to others on the
Statements of Financial Condition. Drafts payable represent the
balances in these accounts related to outstanding checks that
have not yet been presented for payment at the bank. The Company
has sufficient funds
D-70
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
on deposit to clear these checks, and these funds will be
transferred to the zero-balance accounts upon
presentment. The Company maintains one zero-balance
account which is used as a cash management technique, permitted
under
Rule 15c3-3
of the Securities and Exchange Commission, to obtain federal
funds for a fee, which is lower than prevailing interest rates,
in amounts equivalent to amounts in customers segregated
funds accounts with a bank.
|
|
11.
|
Short-Term
Bank Loans and Notes Payables
|
Short-term bank loans are made under a variety of bank lines of
credit totaling $210 million of which approximately
$139 million was outstanding at June 30, 2007. These
bank lines of credit consist of credit lines that the Company
has been advised are available solely for financing securities
inventory but for which no contractual lending obligation exist
and are repayable on demand. These loans are collateralized by
eligible securities, including Company-owned securities, subject
to certain regulatory formulas. Typically, these lines of credit
will allow the Company to borrow up to 85% to 90% of the market
value of the collateral. These loans bear interest at variable
rates based primarily on the Federal Funds interest rate. The
weighted average interest rates on these loans were 5.80% and
5.74% at June 30, 2007 and December 31, 2006,
respectively. At June 30, 2007, short-term bank loans were
collateralized by Company-owned securities, which are classified
as securities owned, of $159 million.
The Companys notes payable include a $12.0 million
Term Loan to finance the acquisition of Descap. Interest rate is
2.40% over the
30-day
London InterBank Offered Rate (LIBOR) (5.38% at
June 30, 2007). Interest only was payable for the first six
months, and thereafter monthly payments of $238 thousand in
principal and interest over the life of the loan which matures
on May 14, 2011. The Term Loan agreement contains various
covenants, as defined in the agreement. The Agreement requires
that the Companys modified total funded debt to EBITDAR
not to exceed 1.75 to 1 (for the twelve-month period ending
June 30, 2007, modified total funded indebtedness EBITDAR
ratio was 0.58 to 1). In addition, the modified Term Loan
agreement requires operating cash flow to total fixed charges
(as defined) to be not less than 1.15 to 1 (for the twelve-month
period ending June 30, 2007, the operating cash flow to
total fixed charge ratio was 1.41 to 1). EBITDAR is defined as
earnings before interest, taxes, depreciation, amortization and
lease expense plus pro forma adjustments. The definition of
operating cash flow includes the payment of cash dividends;
therefore, the Companys ability to pay cash dividends in
the future may be impacted by the covenant. (See
Subsequent Events note for recent term loan and
capital leases waiver)
Principal payments for the Term Loan are due as follows:
|
|
|
|
|
|
|
(In thousands of
|
|
|
|
dollars)
|
|
|
2007 (remaining)
|
|
$
|
1,429
|
|
2008
|
|
|
2,857
|
|
2009
|
|
|
2,857
|
|
2010
|
|
|
2,857
|
|
2011
|
|
|
1,238
|
|
|
|
|
|
|
Total principal payments remaining
|
|
$
|
11,238
|
|
|
|
|
|
|
D-71
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
Obligations
Under Capitalized Leases
|
The following is a schedule of future minimum lease payments
under capital leases for office equipment together with the
present value of the net minimum lease payments at June 30,
2007:
|
|
|
|
|
|
|
(In thousands of
|
|
|
|
dollars)
|
|
|
2007 (remaining)
|
|
$
|
758
|
|
2008
|
|
|
999
|
|
2009
|
|
|
676
|
|
2010
|
|
|
460
|
|
2011
|
|
|
213
|
|
2012
|
|
|
11
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
3,117
|
|
Less: amount representing interest
|
|
|
321
|
|
|
|
|
|
|
Present value of minimum lease
payments
|
|
$
|
2,796
|
|
|
|
|
|
|
(See Subsequent Events note for recent term loan and
capital leases waiver)
|
|
13.
|
Commitments
and Contingencies
|
Investment Agreement: In May 2007 the
Company entered into an agreement pursuant to which an affiliate
of MatlinPatterson Global Opportunities Partners II will
invest $50 million in the Companys common equity.
Under the terms of the investment agreement, MatlinPatterson
will acquire a minimum of 33,333,333 shares of common stock
for $50 million, representing an effective purchase price
of $1.50 per share. The number of shares issuable to
MatlinPatterson in consideration of the $50 million
purchase price is subject to upward adjustment if the Company
incurs certain incremental employment-related obligations as a
result of the DEPFA transaction not having closed prior to the
closing of the MatlinPatterson transaction and if the
Companys consolidated net tangible book value per share at
closing is less than $1.60. Upon the closing of the
MatlinPatterson transaction, and after giving effect to the
contemplated issuance of restricted stock units upon closing of
the MatlinPatterson transaction, MatlinPatterson is currently
expected to own between 70 and 75% of the outstanding common
stock of the Company (between 60 and 65% on a fully diluted
basis), based on the number of shares outstanding on
June 25, 2007, and after giving effect to an increase in
the number of shares to be purchased by MatlinPatterson that may
result from the adjustment provisions of the Investment
Agreement and which may further increase the number of shares of
our common stock issuable to MatlinPatterson. The
MatlinPatterson transaction is expected to close in the third
quarter of 2007, subject to approval from the First Albany
shareholders as well as customary regulatory approvals and other
closing conditions. Upon closing, MatlinPatterson will also have
three representatives on a nine member First Albany Board of
Directors.
Asset Purchase Agreement: On
March 6, 2007 The Company entered into an Asset Purchase
Agreement for the sale of the Municipal Capital Markets Group of
First Albany Capital to DEPFA for $12 million in cash and
the related purchase by DEPFA of First Albany Capitals
municipal bond inventory used in the business, which is expected
to range in value at closing from between $150-200 million.
In connection with this transaction, DEPFA will assume the
rights to the name First Albany and the Company will
operate under a new name to be announced. The closing of the
transaction is subject to DEPFA obtaining a US broker-dealer
license, regulatory approvals and other customary conditions.
MatlinPatterson FA Acquisition LLC and DEPFA, entered into a
voting agreement dated as of June 29, 2007 (the DEPFA
Voting Agreement). Among other things, the DEPFA Voting
Agreement provides that MatlinPatterson FA Acquisition LLC vote
any shares of the Common Stock as to which MatlinPatterson FA
Acquisition LLC and its affiliates are the beneficial owner or
MatlinPatterson FA Acquisition LLC is otherwise able to direct
the voting thereof, in favor of an amendment to the certificate
of incorporation of the Issuer changing its corporate name
D-72
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
to a name that does not include the words First
Albany or any derivative thereof at every meeting of the
Issuer at which such matter is considered and every adjournment
thereof; MatlinPatterson FA Acquisition LLC agree not to
solicit, encourage or recommend to other stockholders of the
Issuer that they vote their shares of Common Stock or any other
securities in any contrary manner, or they not vote their shares
of Common Stock at all; and MatlinPatterson FA Acquisition LLC
vote the Shares in favor of the approval of the Asset Purchase
Agreement if submitted to a vote of the Issuers
stockholders, and against any Incompatible Transaction, as
defined in the DEPFA Voting Agreement, submitted to a vote of
the Issuers stockholders. The term of the DEPFA Voting
Agreement commences on June 29, 2007 and expires on the
earlier of the Closing Date, as defined in the Asset Purchase
Agreement; and the termination of the Asset Purchase Agreement
in accordance with its terms.
Commitments: As of June 30, 2007,
the Company had a commitment to invest up to an additional
$2.4 million in FA Technology Ventures, LP (the
Partnership). The investment period expired in July
2006, however, the General Partner may continue to make capital
calls up through July 2011 for additional investments in
portfolio companies and for the payment of management fees. The
Company intends to fund this commitment from working capital.
The Partnerships primary purpose is to provide investment
returns consistent with risks of investing in venture capital.
In addition to the Company, certain other limited partners of
the Partnership are officers or directors of the Company. The
majority of the commitments to the Partnership are from
non-affiliates of the Company.
The General Partner for the Partnership is FATV GP LLC. The
General Partner is responsible for the management of the
Partnership, including among other things, making investments
for the Partnership. The members of the General Partnership are
George McNamee, Chairman of the Company, First Albany Enterprise
Funding, Inc., a wholly owned subsidiary of the Company, and
other employees of the Company or its subsidiaries.
Mr. McNamee is required under the Partnership agreement to
devote a majority of his business time to the conduct of the
affairs of the Partnership and any parallel funds. Subject to
the terms of the Partnership agreement, under certain
conditions, the General Partnership is entitled to share in the
gains received by the Partnership in respect of its investment
in a portfolio company. The General Partner will receive a
carried interest on customary terms. The General Partner has
contracted with FATV to act as investment advisor to the General
Partner.
As of June 30, 2007, the Company had an additional
commitment to invest up to $0.2 million in funds that
invest in parallel with the Partnership, which it intends to
fund, at least in part, through current and future Employee
Investment Funds (EIF). The investment period expired in July
2006, but the General Partner may continue to make capital calls
up through July 2011 for additional investments in portfolio
companies and for the payment of management fees. The Company
anticipates that the portion of the commitment that is not
funded by employees through the EIF will be funded by the
Company through working capital.
Contingent Consideration: On
May 14, 2004, the Company acquired 100 percent of the
outstanding common shares of Descap, a New York-based
broker-dealer and investment bank. Per the acquisition
agreement, the Sellers can receive future contingent
consideration (Earnout Payment) based on the
following: for each of the years ending May 31, 2005,
May 31, 2006 and May 31, 2007, if Descaps
Pre-Tax Net Income (as defined) (i) is greater than
$10 million, the Company shall pay to the Sellers an
aggregate amount equal to fifty percent (50%) of Descaps
Pre-Tax Net Income for such period, or (ii) is equal to or
less than $10 million, the Company shall pay to the Sellers
an aggregate amount equal to forty percent (40%) of
Descaps Pre-Tax Net Income for such period. Each Earnout
Payment shall be paid in cash, provided that Buyer shall have
the right to pay up to seventy-five percent (75%) of each
Earnout Payment in the form of shares of Company Stock. The
amount of any Earnout Payment that the Company elects to pay in
the form of Company Stock shall not exceed $3.0 million for
any Earnout Period and in no event shall such amounts exceed
$6.0 million in the aggregate for all Earnout Payments.
Based upon Descaps Pre-Tax Net Income from June 1,
2005 through May 31, 2006, $1.0 million of contingent
consideration has been accrued at June 30, 2007. Also,
based upon Descaps Pre-Tax Net Income from June 1,
2006 to May 31, 2007, no contingent consideration would be
payable to the Sellers.
Leases: The Companys headquarters
and sales offices, and certain office and communication
equipment, are leased under non-cancelable operating leases,
certain of which contain renewal options and escalation clauses,
D-73
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and which expire at various times through 2015. To the extent
the Company is provided tenant improvement allowances funded by
the lessor, they are amortized over the initial lease period and
serve to reduce rent expense. To the extent the Company is
provided free rent periods, the Company recognizes the rent
expense over the entire lease term on a straightline basis.
Future minimum annual lease payments, and sublease rental
income, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
Sublease
|
|
|
|
|
|
|
Lease
|
|
|
Rental
|
|
|
Net Lease
|
|
|
|
Payments
|
|
|
Income
|
|
|
Payments
|
|
|
|
(In thousands of dollars)
|
|
|
2007 (remaining)
|
|
$
|
3,482
|
|
|
$
|
589
|
|
|
$
|
2,893
|
|
2008
|
|
|
6,202
|
|
|
|
971
|
|
|
|
5,231
|
|
2009
|
|
|
2,831
|
|
|
|
100
|
|
|
|
2,731
|
|
2010
|
|
|
2,518
|
|
|
|
100
|
|
|
|
2,418
|
|
2011
|
|
|
2,439
|
|
|
|
100
|
|
|
|
2,339
|
|
2012
|
|
|
2,417
|
|
|
|
100
|
|
|
|
2,317
|
|
Thereafter
|
|
|
4,376
|
|
|
|
91
|
|
|
|
4,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24,265
|
|
|
$
|
2,051
|
|
|
$
|
22,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation: In 1998, the Company was
named in lawsuits by Lawrence Group, Inc. and certain related
entities (the Lawrence Parties) in connection with a
private sale of Mechanical Technology Inc. stock from the
Lawrence Parties that was previously approved by the United
States Bankruptcy Court for the Northern District of New York
(the Bankruptcy Court). The Company acted as
placement agent in that sale, and a number of employees and
officers of the Company, who have also been named as defendants,
purchased shares in the sale. The complaints alleged that the
defendants did not disclose certain information to the sellers
and that the price approved by the court was therefore not
proper. The cases were initially filed in the Bankruptcy Court
and the United States District Court for the Northern District
of New York (the District Court), and were
subsequently consolidated in the District Court. The District
Court dismissed the cases, and that decision was subsequently
vacated by the United States Court of Appeals for the Second
Circuit, which remanded the cases for consideration of the
plaintiffs claims as motions to modify the Bankruptcy
Court sale order. The plaintiffs claims have now been
referred back to the Bankruptcy Court for such consideration.
Discovery is currently underway. The Company believes that it
has strong defenses to and intends to vigorously defend itself
against the plaintiffs claims, and believes that the
claims lack merit. However, an unfavorable resolution could have
a material adverse effect on the Companys financial
position, results of operations and cash flows in the period
resolved.
The Companys wholly owned subsidiary Descap acted as the
seller in a series of purchases by a large institutional
customer of collateralized mortgage securities (the
Bonds) from April through June 2006. In these
transactions, Descap acted as riskless principal,
insofar as it purchased the Bonds from a third party and
immediately resold them to the customer. The customer who
purchased the Bonds has claimed that Descap misled the customer
through misrepresentations and omissions concerning certain
fundamental elements of the Bonds and that the customer would
not have purchased the Bonds had it not been misled by Descap.
By letter of September 14, 2006, the customer claimed that
the Company and Descap are liable to the customer for damages in
an amount in excess of $21 million and has threatened
litigation if the dispute is not resolved. The Company and
Descap have denied that Descap is responsible for the
customers damages and intend to defend vigorously any
litigation that the customer may commence. The Company and
Descap have held discussions with the customer in an attempt to
resolve the dispute. In addition, Descap has taken steps that
the Company and Descap believe have mitigated substantially any
losses that the customer may have suffered as a result of its
purchase of the Bonds. No legal proceedings have been brought to
date. The outcome of this dispute is highly uncertain, however,
and an unfavorable resolution could have a material adverse
effect on the Companys financial position, results of
operations and cash flows in the period resolved.
D-74
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In the normal course of business, the Company has been named a
defendant, or otherwise has possible exposure, in several
claims. Certain of these are class actions, which seek
unspecified damages that could be substantial. Although there
can be no assurance as to the eventual outcome of litigation in
which the Company has been named as a defendant or otherwise has
possible exposure, the Company has provided for those actions
most likely to have an adverse disposition. Although further
losses are possible, the opinion of management, based upon the
advice of its attorneys, is that such litigation will not, in
the aggregate, have a material adverse effect on the
Companys liquidity, financial position or cash flow,
although it could have a material effect on quarterly or annual
operating results in the period in which it is resolved.
In the ordinary course of business, the Company is called upon
from time to time to answer inquiries and subpoenas on a number
of different issues by self-regulatory organizations, the SEC
and various state securities regulators. In recent years, there
has been an increased incidence of regulatory enforcement in the
United States involving organizations in the financial services
industry, and the Company is no exception. We are not always
aware of the subject matter of the particular inquiry or the
ongoing status of a particular inquiry. As a result of some of
these inquiries, the Company has been cited for technical
operational deficiencies. Although there can be no assurance as
to the eventual outcome of these proceedings, none of these
inquiries has to date had a material effect upon the business or
operations of the Company.
Collateral: The fair value of
securities received as collateral, where the Company is
permitted to sell or repledge the securities consisted of the
following as of:
|
|
|
|
|
|
|
|
|
|
|
June 30
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands of dollars)
|
|
|
Securities purchased under
agreements to resell
|
|
$
|
10,013
|
|
|
$
|
13,990
|
|
Securities borrowed
|
|
|
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,013
|
|
|
$
|
14,432
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2007, and December 31, 2006, a substantial
portion of this collateral received by the Company had been sold
or repledged.
Other: The Company enters into
underwriting commitments to purchase securities as part of its
investment banking business. Also, the Company may purchase and
sell securities on a when-issued basis. As of June 30,
2007, the Company had $42 thousand in outstanding underwriting
commitments and had purchased $4.7 million and sold
$33.9 million securities on a when-issued basis.
In connection with the Companys acquisition of Descap, the
Company issued 549,476 shares of stock which provides the
Sellers the right (put right) to require the Company
to purchase back the shares issued, at a price of $6.14 per
share. Accordingly, the Company has recognized as temporary
capital the amount that it may be required to pay under the
agreement. If the put is not exercised by the time it expires,
the Company will reclassify the temporary capital to
stockholders equity. The Company also has the right to
purchase back these shares from the Sellers at a price of
$14.46. The earnout period ended on May 31, 2007. The put
and call rights expire on the date in which the final earnout
payment is required to be made. In June 2006, certain of the
Sellers of Descap exercised their put rights and the Company
repurchased 532,484 shares at $6.14 per share for the total
amount of $3.3 million.
A select group of management and highly compensated employees
are eligible to participate in the First Albany Companies Inc.
Deferred Compensation Plan for Key Employees and the First
Albany Companies Inc. 2005 Deferred Compensation Plan for Key
Employees (the Key Plans). The employees enter into
subordinated loans with the Company to provide for the deferral
of compensation and employer allocations under the Key Plans.
The
D-75
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
New York Stock Exchange has approved the Companys
subordinated debt agreements related to the Key Plans. Pursuant
to these approvals, these amounts are allowable in the
Companys computation of net capital. The accounts of the
participants of the Key Plans are credited with earnings
and/or
losses based on the performance of various investment benchmarks
selected by the participants. Maturities of the subordinated
debt are based on the distribution election made by each
participant, which may be deferred to a later date by the
participant. Principal debt repayment requirements, which occur
on about April 15th of each year, as of June 30,
2007, are as follows:
|
|
|
|
|
|
|
(In thousands of
|
|
|
|
dollars)
|
|
|
2008
|
|
$
|
1,299
|
|
2009
|
|
|
465
|
|
2010
|
|
|
287
|
|
2011
|
|
|
108
|
|
2012 to 2016
|
|
|
803
|
|
|
|
|
|
|
Total
|
|
$
|
2,962
|
|
|
|
|
|
|
Deferred
Compensation and Employee Stock Trust
The Company has adopted various nonqualified deferred
compensation plans (the Plans) for the benefit of a
select group of highly compensated employees who contribute
significantly to the continued growth and development and future
business success of the Company. Plan participants may elect
under the Plans to have the value of their Plan accounts track
the performance of one or more investment benchmarks available
under the Plans, including First Albany Companies Common Stock
Investment Benchmark, which tracks the performance of First
Albany Companies Inc. common stock (Company Stock).
With respect to the First Albany Companies Common Stock
Investment Benchmark, the Company contributes Company Stock to a
rabbi trust (the Trust) it has established in
connection with meeting its related liability under the Plans.
On October 26, 2006, the Plans were frozen by the Board of
Directors, with respect to deferrals subsequent to the 2006
plans year, because of declining participation and because the
costs of administration outweighed the benefits of maintaining
the Plans.
Assets of the Trust have been consolidated with those of the
Company. The value of the Companys stock at the time
contributed to the Trust has been classified in
stockholders equity and generally accounted for in a
manner similar to treasury stock.
The deferred compensation arrangement requires the related
liability to be settled by delivery of a fixed number of shares
of Company Stock. Accordingly, the related liability is
classified in equity under deferred compensation and changes in
the fair market value of the amount owed to the participant in
the Plan is not recognized.
Income tax expense is recorded using the asset and liability
method. Deferred tax assets and liabilities are recognized for
the expected future tax consequences attributable to temporary
differences between amounts reported for income tax purposes and
financial statement purposes, using current tax rates. A
valuation allowance is recognized if it is anticipated that some
or all of a deferred tax asset will not be realized.
The Company must assess the likelihood that its deferred tax
assets will be recovered from future taxable income and, to the
extent that the Company believes that recovery is not likely, it
must establish a valuation allowance. Significant management
judgment is required in determining the provision for income
taxes, deferred tax assets and liabilities and any valuation
allowance recorded against net deferred tax assets. The Company
has recorded a full valuation allowance as a result of
uncertainties related to the realization of its net deferred tax
assets
D-76
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
at June 30, 2007 and December 31, 2006. The valuation
allowance was established as a result of weighing all positive
and negative evidence, including the Companys history of
cumulative losses over at least the past three years and the
difficulty of forecasting future taxable income. The valuation
allowance reflects the conclusion of management that it is more
likely than not that the benefit of the deferred tax assets will
not be realized.
In the event actual results differ from these estimates or these
estimates are adjusted in future periods, the valuation
allowance may require adjustment which could materially impact
the Companys financial position and results of operations.
The Company adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48) effective January 1, 2007.
The cumulative effect of adopting FIN 48 was an increase in
tax reserves of $0.7 million. The increase in tax reserves
has two components, $0.6 million of which was accounted for
as a reduction to the January 1, 2007 balance of retained
earnings and $0.1 million which was accounted for as a
reduction to the valuation allowance. Upon adoption, the
liability for unrecognized tax benefits, including applicable
interest and penalties, was $1.0 million. If recognized,
$0.6 million of the liability for unrecognized tax benefits
could potentially have a favorable impact on the effective tax
rate to the extent the Company has a full valuation allowance.
Without a valuation allowance, this favorable impact on the
effective tax rate reduces to $0.5 million.
During the six months ended June 30, 2007,
$0.2 million of unrecognized tax benefits above, including
related interest, was recognized as a result of the lapse of
federal statute of limitations related to the liability. A
benefit of $0.1 million was allocated to discontinued
operations and $0.1 million was allocated as an increase to
equity. Also during the six months ended June 30, 2007, the
Company increased its reserve by $0.1 million.
The Company and its subsidiaries are subject to
U.S. federal income tax as well as income tax of multiple
state jurisdictions. As of January 1, 2007, with few
exceptions, the Company and its subsidiaries were no longer
subject to U.S. federal tax or state and local income tax
examinations for years before 2003. There are no returns
currently under examination.
The Companys continuing practice is to recognize interest
and penalties related to income tax matters as a component of
income tax. As of January 1, 2007, the Company had accrued
approximately $0.1 million of interest and $0 of penalties,
which is included as a component of the unrecognized tax benefit
noted above. During the six months ended June 30, 2007, the
Company accrued an additional $32 thousand of interest, which
has been recognized as a component of income tax.
The Company does not anticipate that total unrecognized tax
benefits will significantly change due to settlement of audits
and the expiration of statute of limitations over the next
12 months.
First Albany Companies Inc. has established several stock
incentive plans through which employees of the Company may be
awarded stock options, stock appreciation rights and restricted
common stock, which expire at various times through
April 25, 2017. The following is a recap of all plans as of
June 30, 2007:
|
|
|
|
|
Shares authorized for issuance
|
|
|
10,606,015
|
|
|
|
|
|
|
Share awards used:
|
|
|
|
|
Stock options granted and
outstanding
|
|
|
1,639,253
|
|
Restricted stock awards granted
and unvested
|
|
|
834,769
|
|
Options exercised and restricted
stock awards vested
|
|
|
6,053,908
|
|
Stock options expired and no
longer available
|
|
|
331,046
|
|
|
|
|
|
|
Total share awards used
|
|
|
8,858,976
|
|
|
|
|
|
|
Shares available for future awards
|
|
|
1,747,039
|
|
|
|
|
|
|
D-77
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the six-month period ended June 30, 2007 and
June 30, 2006, total compensation expense for share based
payment arrangements was $2.2 million and
$4.0 million, respectively and the related tax benefit was
$0 and $0, respectively. At June 30, 2007, the total
compensation expense related to non-vested awards not yet
recognized is $3.6 million, which is expected to be
recognized over the remaining weighted average vesting period of
1.3 years. At June 30, 2006, the total compensation
expense related to non-vested awards not yet recognized was
$12.1 million. The amount of cash used to settle equity
instruments granted under share based payment arrangements
during the six-month period ended June 30, 2007 was $0.
Cumulative Effect of Accounting
Change: Upon adoption of
FAS 123(R)Share-Based Payment on January 1,
2006, the Company recognized an after-tax gain of approximately
$0.4 million as the cumulative effect of a change in
accounting principle, primarily attributable to the requirement
to estimate forfeitures at the date of grant instead of
recognizing them as incurred.
Options: Options granted under the
plans have been granted at not less than fair market value, vest
over a maximum of five years, and expire ten years after grant
date. Unvested options are typically forfeited upon termination.
Option transactions for the six-month period ended June 30,
2007, under the plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Shares Subject
|
|
|
Average
|
|
|
|
to Option
|
|
|
Exercise Price
|
|
|
Balance at December 31, 2006
|
|
|
1,826,826
|
|
|
$
|
8.45
|
|
Options granted
|
|
|
100,000
|
|
|
|
1.64
|
|
Options exercised
|
|
|
|
|
|
|
|
|
Options terminated
|
|
|
(287,573
|
)
|
|
|
8.29
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
|
1,639,253
|
|
|
$
|
8.06
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2007, the stock options that were exercisable
had a remaining average contractual term of 4.0 years. At
June 30, 2007, 1,639,253 options outstanding had an
intrinsic value of $0.
The following table summarizes information about stock options
outstanding under the plans at June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Life
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
Exercise Price Range
|
|
Shares
|
|
|
(Years)
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
$ 1.64 - $ 6.44
|
|
|
445,534
|
|
|
|
5.48
|
|
|
$
|
4.81
|
|
|
|
345,533
|
|
|
$
|
5.72
|
|
$ 6.53 - $ 9.14
|
|
|
967,706
|
|
|
|
3.26
|
|
|
|
8.11
|
|
|
|
964,374
|
|
|
|
8.11
|
|
$ 9.47 - $13.26
|
|
|
11,000
|
|
|
|
6.18
|
|
|
|
12.98
|
|
|
|
11,000
|
|
|
|
12.98
|
|
$13.35 - $18.70
|
|
|
215,013
|
|
|
|
4.22
|
|
|
|
14.36
|
|
|
|
215,013
|
|
|
|
14.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,639,253
|
|
|
|
4.01
|
|
|
$
|
8.06
|
|
|
|
1,535,920
|
|
|
$
|
8.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Black-Scholes option pricing model is used to determine the
fair value of options granted. For the six-month period ended
June 30, 2007, significant assumptions used to estimate the
fair value of share based compensation awards include the
following:
|
|
|
|
|
|
|
2007
|
|
|
Expected term-option
|
|
|
6.00
|
|
Expected volatility
|
|
|
44
|
%
|
Expected dividends
|
|
|
|
|
Risk-free interest rate
|
|
|
4.9
|
%
|
D-78
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Since no options were granted during the first six months of
2006, the above assumptions were not established for 2006.
Restricted Stock: Restricted stock
awards under the plans have been valued at the market value of
the Companys common stock as of the grant date and are
amortized over the period in which the restrictions are
outstanding, which is typically 2-3 years. Unvested
restricted stock awards are typically forfeited upon
termination, although there are certain award agreements that
may continue to vest subsequent to termination, as long as other
restrictions are followed. The amortization related to unvested
restricted stock awards that continue to vest subsequent to
termination is immediately accelerated upon the employees
termination. Restricted stock awards for the six-month period
ended June 30, 2007, under the plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Unvested
|
|
|
Average
|
|
|
|
Restricted
|
|
|
Grant-Date
|
|
|
|
Stock Awards
|
|
|
Fair Value
|
|
|
Balance at December 31, 2006
|
|
|
1,788,064
|
|
|
$
|
7.73
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(733,962
|
)
|
|
|
9.79
|
|
Forfeited
|
|
|
(219,333
|
)
|
|
|
8.51
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
|
834,769
|
|
|
$
|
6.37
|
|
|
|
|
|
|
|
|
|
|
The total fair value of awards vested, based on the fair market
value of the stock on the vest date, during the six-month
periods ending June 30, 2007 and 2006 was $1.4 million
and $5.5 million, respectively.
Stock Based Compensation Awards: On
January 20, 2007, the Company announced an offer to
eligible employees of the opportunity to rescind certain
restricted stock award agreements held by such eligible
employees in return for an award of stock appreciation rights.
On May 17, 2007, the Company announced its determination to
amend and terminate this offer. Such actions, together with the
termination of the Companys previously announced plan to
reprice outstanding employee stock options, had been agreed to
by the Company as part of the Companys agreement with
MatlinPatterson FA Acquisition LLC (see Note 13:
Commitments and Contingences) pursuant to which the Company
agreed to terminate the offer and its previously announced plans
to reprice outstanding employee stock options. The offer
terminated at 11:59 p.m. EDT, May 23, 2007. As a
result of this termination, the Company did not accept any
tendered eligible restricted shares and all such shares shall
remain outstanding pursuant to their original terms and
conditions, including their vesting schedule.
|
|
19.
|
Net
Capital Requirements
|
First Albany Capital Inc. (First Albany Capital) is
subject to the Securities and Exchange Commissions Uniform
Net Capital Rule, which requires the maintenance of a minimum
net capital. First Albany Capital has elected to use the
alternative method permitted by the rule, which requires it to
maintain a minimum net capital amount of 2% of aggregate debit
balances arising from customer transactions as defined or
$1 million, whichever is greater. As of June 30, 2007,
First Albany Capital had aggregate net capital, as defined, of
$9.5 million, which equaled 783% of aggregate debit
balances and $8.5 million in excess of required minimum net
capital.
Descap is subject to the Securities and Exchange Commission
Uniform Net Capital Rule, which requires the maintenance of
minimum net capital and that the ratio of aggregate indebtedness
to net capital, both as defined by the rule, shall not exceed
15:1. The rule also provides that capital may not be withdrawn
or cash dividends paid if the resulting net capital ratio would
exceed 10:1. As of June 30, 2007, Descap had net capital of
$4.3 million, which was $4.0 million in excess of its
required net capital. Descaps ratio of Aggregate
Indebtedness to Net Capital was 0.95 to 1.
D-79
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company is organized around products and operates through
the following segments: Equities; Fixed Income, which is
comprised of Municipal Capital Markets, Descap and Fixed
Income-Other; and Other. The Company evaluates the performance
of its segments and allocates resources to them based on various
factors, including prospects for growth, return on investment,
and return on revenue.
In 2007, the Company reclassified amounts related to the Taxable
Municipals group from Fixed Income-Other segment to the Fixed
Income Municipal Capital Markets segment due to
changes in the structure of the Companys internal
organization. As a result, Fixed Income-Other was comprised
wholly of the Companys Fixed Income Middle Markets
business, which was discontinued in June 2007. 2006 amounts have
been reclassified to conform to 2007 presentation.
The Companys Equities business is comprised of equity
sales and trading and equities investment banking services.
Equities sales and trading provides equity trade execution to
institutional investors and generates revenues primarily through
commissions and sales credits earned on executing equity
transactions. Equities investment banking generates revenues by
providing financial advisory, capital raising, mergers and
acquisitions, and restructuring services to small and mid-cap
companies.
The Companys Fixed Income business consists of the
Municipal Capital Markets and Descap segments. As noted above,
the Companys Fixed Income-Other segment was discontinued
in June 2007. The Fixed Income business consists of fixed income
sales and trading and fixed income investment banking. Fixed
Income sales and trading provides trade execution to
institutional investors and generates revenues primarily through
commissions and sales credits earned on executing fixed income
transactions in the following products:
|
|
|
|
|
Mortgage-Backed and Asset-Backed Securities
|
|
|
|
|
|
Municipal Bonds (Tax-exempt and Taxable Municipal Securities)
|
|
|
|
|
|
High Grade Bonds (Investment Grade and Government Bonds)
|
These products can be sold through any of the Companys
Fixed Income segments. Fixed Income investment banking generates
revenues by providing financial advisory and capital raising
services to municipalities, government agencies and other public
institutions.
The Companys Other segment includes the results from the
Companys investment portfolio, venture capital, and costs
related to corporate overhead and support. The Companys
investment portfolio generates revenue from unrealized gains and
losses as a result of changes in value of the firms
investments and realized gains and losses as a result of sales
of equity holdings. The Companys venture capital business
generates revenue through the management of the FA Technology
Ventures L.P. and private equity funds. This segment also
includes results related to the Companys investment in
these private equity funds and any gains or losses that might
result from those investments.
During 2006, the Company discontinued its Taxable Fixed Income
corporate bond segment and its Institutional Convertible Bond
Arbitrage Advisory Group subsidiary which was previously
included in the Other caption (see
Discontinued Operations note). 2006 amounts have
been reclassified to conform to the 2007 presentation.
Intersegment revenue has been eliminated for purposes of
presenting net revenue so that all net revenue presented is from
external sources. Interest revenue is allocated to the operating
segments and is presented net of interest expense for purposes
of assessing the performance of the segment. Depreciation and
amortization is allocated to each segment.
D-80
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Information concerning operations in these segments is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30
|
|
|
June 30
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands of dollars)
|
|
|
Net revenue (including net
interest income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
4,840
|
|
|
$
|
19,763
|
|
|
$
|
12,121
|
|
|
$
|
39,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Capital Markets
|
|
|
10,301
|
|
|
|
10,892
|
|
|
|
17,982
|
|
|
|
19,318
|
|
Descap Securities
|
|
|
3,915
|
|
|
|
8,548
|
|
|
|
6,543
|
|
|
|
11,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Income
|
|
|
14,216
|
|
|
|
19,440
|
|
|
|
24,525
|
|
|
|
31,061
|
|
Other
|
|
|
1,045
|
|
|
|
1,970
|
|
|
|
2,157
|
|
|
|
(4,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenue
|
|
$
|
20,101
|
|
|
$
|
41,173
|
|
|
$
|
38,803
|
|
|
$
|
66,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (included
in total net revenue)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
11
|
|
|
$
|
(3
|
)
|
|
$
|
9
|
|
|
$
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Capital Markets
|
|
|
(563
|
)
|
|
|
(349
|
)
|
|
|
(1,070
|
)
|
|
|
(596
|
)
|
Descap Securities
|
|
|
(125
|
)
|
|
|
(86
|
)
|
|
|
(362
|
)
|
|
|
(241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Income
|
|
|
(688
|
)
|
|
|
(435
|
)
|
|
|
(1,432
|
)
|
|
|
(837
|
)
|
Other
|
|
|
412
|
|
|
|
24
|
|
|
|
968
|
|
|
|
(614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Interest Income (Expense)
|
|
$
|
(265
|
)
|
|
$
|
(414
|
)
|
|
$
|
(455
|
)
|
|
$
|
(1,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax Contribution
(Income (loss)
before income taxes, discontinued operations and cumulative
effect of change in accounting principle)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
(3,704
|
)
|
|
$
|
1,688
|
|
|
$
|
(6,089
|
)
|
|
$
|
3,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Capital Markets
|
|
|
1,536
|
|
|
|
1,951
|
|
|
|
3,150
|
|
|
|
3,133
|
|
Descap Securities
|
|
|
987
|
|
|
|
1,764
|
|
|
|
539
|
|
|
|
617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Income
|
|
|
2,523
|
|
|
|
3,715
|
|
|
|
3,689
|
|
|
|
3,750
|
|
Other
|
|
|
(3,061
|
)
|
|
|
(8,851
|
)
|
|
|
(6,643
|
)
|
|
|
(23,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Pre-tax Contribution
|
|
$
|
(4,242
|
)
|
|
$
|
(3,448
|
)
|
|
$
|
(9,043
|
)
|
|
$
|
(15,619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
expense (charged to each segment in measuring the Pre-tax
Contribution)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
136
|
|
|
$
|
164
|
|
|
$
|
288
|
|
|
$
|
355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Capital Markets
|
|
|
73
|
|
|
|
62
|
|
|
|
149
|
|
|
|
132
|
|
Descap Securities
|
|
|
14
|
|
|
|
26
|
|
|
|
41
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Income
|
|
|
87
|
|
|
|
88
|
|
|
|
190
|
|
|
|
188
|
|
Other
|
|
|
207
|
|
|
|
195
|
|
|
|
433
|
|
|
|
1,020
|
|
Discontinued operations
|
|
|
9
|
|
|
|
104
|
|
|
|
14
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
439
|
|
|
$
|
551
|
|
|
$
|
925
|
|
|
$
|
1,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D-81
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For presentation purposes, net revenue within each of the
businesses is classified as sales and trading, investment
banking, or net interest / other. Sales and trading
net revenue includes commissions and principal transactions.
Investment banking includes revenue related to underwritings and
other investment banking transactions. Net interest/other
includes interest income, interest expense, and fees and other
revenue. Net revenue presented within each category may differ
from that presented in the financial statements as a result of
differences in categorizing revenue within each of the revenue
line items listed below for purposes of reviewing key business
performance.
The following table reflects revenues for the Companys
major products and services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30
|
|
|
June 30
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands of dollars)
|
|
|
Capital Markets (Fixed
Income & Equities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Sales &
Trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
$
|
2,963
|
|
|
$
|
9,225
|
|
|
$
|
7,979
|
|
|
$
|
20,344
|
|
Fixed Income
|
|
|
7,637
|
|
|
|
11,957
|
|
|
|
13,492
|
|
|
|
20,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Institutional
Sales & Trading
|
|
|
10,600
|
|
|
|
21,182
|
|
|
|
21,471
|
|
|
|
40,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Banking
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
|
|
|
1,857
|
|
|
|
10,534
|
|
|
|
4,109
|
|
|
|
18,854
|
|
Fixed Income
|
|
|
7,244
|
|
|
|
7,666
|
|
|
|
12,441
|
|
|
|
11,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Banking
|
|
|
9,101
|
|
|
|
18,200
|
|
|
|
16,550
|
|
|
|
30,093
|
|
Net Interest Income/Other
|
|
|
(645
|
)
|
|
|
(179
|
)
|
|
|
(1,375
|
)
|
|
|
(589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenues
|
|
$
|
19,056
|
|
|
$
|
39,203
|
|
|
$
|
36,646
|
|
|
$
|
70,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys segments financial policies are the
same as those described in the Summary of Significant
Accounting Policies note in the Companys Annual
Report on
Form 10-K
for the year ended December 31, 2006. Asset information by
segment is not reported since the Company does not produce such
information. All assets are primarily located in the United
States of America.
|
|
21.
|
Discontinued
Operations
|
In June 2007, the Company closed its Fixed Income Middle Markets
group following the departure of the employees of the group.
Additionally, in April 2007, the Company closed its
Institutional Convertible Bond Arbitrage Advisory Group after
committing to a plan to dispose of the group in September 2006.
In 2006, the company closed its Taxable Fixed Income corporate
bond division and in 2000, the Company sold its Private Client
Group. The Company continues to report the receipt and
settlement of pending contractual obligations related to these
transactions as discontinued operations.
D-82
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amounts reflected in the unaudited condensed consolidated
statements of operations are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Three Months Ended
|
|
|
Ended
|
|
|
|
June 30
|
|
|
June 30
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands of dollars)
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income Middle Markets:
|
|
$
|
69
|
|
|
$
|
94
|
|
|
$
|
1,169
|
|
|
$
|
960
|
|
Convertible Bond Arbitrage
|
|
|
|
|
|
|
88
|
|
|
|
128
|
|
|
|
148
|
|
Taxable Fixed Income
|
|
|
|
|
|
|
450
|
|
|
|
|
|
|
|
3,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
69
|
|
|
|
632
|
|
|
|
1,297
|
|
|
|
4,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income Middle Markets:
|
|
|
283
|
|
|
|
342
|
|
|
|
911
|
|
|
|
926
|
|
Convertible Bond Arbitrage
|
|
|
208
|
|
|
|
326
|
|
|
|
546
|
|
|
|
659
|
|
Asset management operations
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
Private Client Group
|
|
|
80
|
|
|
|
62
|
|
|
|
90
|
|
|
|
227
|
|
Taxable Fixed Income
|
|
|
85
|
|
|
|
2,614
|
|
|
|
103
|
|
|
|
5,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
656
|
|
|
|
3,358
|
|
|
|
1,650
|
|
|
|
7,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(587
|
)
|
|
|
(2,726
|
)
|
|
|
(353
|
)
|
|
|
(3,200
|
)
|
Income tax benefit
|
|
|
|
|
|
|
|
|
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations,
net of taxes
|
|
$
|
(587
|
)
|
|
$
|
(2,726
|
)
|
|
$
|
(248
|
)
|
|
$
|
(3,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain 2006 amounts have been reclassified to conform to the
2007 presentation.
Fixed Income Middle Markets: The
revenues and expenses for the three and six months ended
June 30, 2007 and 2006 represents activities of the group
prior to closing on June 22, 2007. The Company allocated
interest expense to the Group for the three and six months ended
June 30, 2007 and 2006, based on the level of securities
owned attributable to this division.
Convertible Bond Arbitrage Advisory
Group: The revenues and expenses of the
Institutional Convertible Bond Arbitrage Advisory Group (the
Group) for the periods above reflect the activity of
the operation through June 30, 2007. The Company had
allocated interest expense to the Group for the three and six
months ended June 30, 2007 and 2006, based on debt
identified as being specifically attributed to those operations.
Taxable Fixed Income: The revenue and
expense of the Taxable Fixed Income Corporate Bond division for
the three and six months ended June 30, 2007 and 2006
represents the activity of the operations during that time
period. No interest has been allocated to Taxable Fixed Income
since this division was closed. Prior to closing this division,
interest was allocated primarily based on the level of
securities owned attributable to this division.
Private Client Group: The Private
Client Groups expense for the three and six months ended
June 30, 2007 and 2006 relates primarily to legal matters
which were related to the operations prior to its disposal. For
the periods presented, interest was not allocated to the Private
Client Group. In March 2007, the statute of limitations lapsed
related to a tax reserve that was established when the group was
sold in 2000 resulting in a $0.1 million income tax benefit
for the six months ended June 30, 2007.
Sale of Companys Municipal Capital Markets
Division: The Company announced on
March 6, 2007, the agreement for the sale of the Municipal
Capital Markets Group (see Segment Analysis note) of
its wholly owned subsidiary, First Albany Capital to DEPFA BANK
plc for $12 million in cash, subject to certain adjustments
as
D-83
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
outlined in the agreement, and the related purchase by DEPFA of
First Albanys municipal bond inventory used in the
business, which is expected to range in value at closing from
between $150-$200 million. In connection with this
transaction, DEPFA will assume the rights to the name
First Albany and the Company will operate under a
new name to be announced. The closing of the transaction is
subject to DEPFA obtaining a US broker-dealer license,
regulatory approvals, the Companys shareholders approval
of the Companys name change, and other customary
conditions. The transaction is currently expected to close in
the third quarter of 2007.
As previously announced, the Company has entered into an Asset
Purchase Agreement with DEPFA dated as of March 6, 2007
(the Asset Purchase Agreement) pursuant to which the
Company agreed to sell the assets of the Municipal Capital
Markets Group of First Albany Capital and the name First
Albany to DEPFA for $12 million in cash and the
related purchase by DEPFA of First Albany Capitals
municipal bond inventory (the DEPFA Transaction).
On July 25, 2007, the Company, First Albany Capital and
DEPFA entered into agreements pursuant to which DEPFA waived
certain provisions of the Asset Purchase Agreement at the
request of the Company, and the Company and First Albany Capital
waived certain provisions of the Asset Purchase Agreement at the
request of DEPFA.
DEPFA
Waiver
On July 25, 2007, the Company and First Albany Capital
entered into a Notice and Waiver Letter Agreement with DEPFA
(the DEPFA Waiver), pursuant to which DEPFA agreed
to waive the condition in the Asset Purchase Agreement requiring
that the Company include, in connection with the sale of the
name First Albany, an amendment to its certificate
of incorporation changing its corporate name to a name that does
not include the words First Albany or FA
or any derivatives thereof (the Charter Amendment)
as a management proposal to be voted on by the shareholders at
its next annual meeting, to be held no later than June 30,
2007. This waiver allows the Company to hold its annual meeting
of shareholders after June 30, 2007, without including the
Charter Amendment, and still comply with the terms of the Asset
Purchase Agreement. The Charter Amendment is expected to be
voted on by the Companys shareholders at a special meeting
following the annual meeting.
In addition, the DEPFA Waiver provides that on the tenth
business day following the satisfaction or waiver of the closing
conditions in the Asset Purchase Agreement, the Company shall
cause its subsidiaries to change their corporate names to a name
that does not include the words First Albany or
FA or any derivative thereof and the Company shall
cause its business to be operated under a trade name that does
not include the name First Albany or FA
or any derivatives thereof.
Pursuant to the DEPFA Waiver, DEPFA also waived the provision in
the Asset Purchase Agreement requiring First Albany Capital to
maintain Tentative Net Capital (as defined in the Asset Purchase
Agreement) of not less than $18,000,000, in exchange for First
Albany Capital providing DEPFA daily copies of certain of its
capital reports until the closing of the DEPFA Transaction. This
allows First Albany Capital to maintain Tentative Net Capital of
less than $18,000,000 without breaching the Asset Purchase
Agreement.
License
Agreement
The DEPFA Waiver provides that DEPFA and the Company shall
entered into a license agreement (the License
Agreement) to allow the Company to operate under a trade
name but continue to use the name First Albany in
certain instances in the event the DEPFA Transaction closes
before the Charter Amendment is approved at the special meeting
or in the event the Charter Amendment is not approved at the
special meeting. In such event, DEPFA will grant the Company a
non-exclusive, royalty-free, non-transferable, non-sublicensable
license of the common law trademark First Albany to
allow the Company to continue to use the name First
Albany in any
D-84
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
context where use of the Companys official corporate name
is required by applicable law and where the Company must use the
name in order to identify itself in the ordinary conduct of its
business. If the Charter Amendment is not effected within sixty
days following the closing of the DEPFA Transaction, then the
Company will pay DEPFA an annual royalty fee of $50,000 until
the License Agreement terminates in accordance with its terms.
Voting
Agreement
As a condition to the DEPFA Waiver, DEPFA and MatlinPatterson FA
Acquisition LLC, a Delaware limited liability company
(MatlinPatterson) entered into a voting agreement
(the Voting Agreement) dated as of June 29,
2007. As previously announced, MatlinPatterson entered into an
investment agreement with the Company on May 14, 2007
pursuant to which MatlinPatterson agreed to purchase 33,333,333
newly-issued shares of the Companys common stock in a
private placement for $50 million (the
MatlinPatterson Transaction). Pursuant to the Voting
Agreement, MatlinPatterson agreed to vote its shares of the
Companys common stock in favor of the Charter Amendment
and not to solicit, encourage or recommend to other shareholders
of the Company that they vote their shares of common stock in
any contrary manner or they not vote their shares of common
stock at all.
The DEPFA Waiver does not constitute a waiver by DEPFA of any
other provisions of the Asset Purchase Agreement.
First
Albany Waiver
On July 25, 2007, the Company and First Albany Capital
entered into a Notice and Waiver Letter Agreement with DEPFA
(the First Albany Waiver), pursuant to which the
Company and First Albany Capital agreed to waive the provision
in Section 4.1 of the Asset Purchase Agreement requiring
the closing to be consummated on the third business day
following satisfaction or waiver of the closing conditions in
the Asset Purchase Agreement and the Company and First Albany
Capital agreed that the closing shall be consummated on the
tenth business day following satisfaction or waiver of such
conditions.
The Company and First Albany Capital also agreed to waive the
provision in the Asset Purchase Agreement requiring DEPFA to
offer to interview each employee in good standing in the
Companys Municipal Capital Markets Division with respect
to a potential offer of employment, subject to DEPFA providing
to each employee a standard form of job application and job
description template to be returned to DEPFA. The First Albany
Waiver also provides that DEPFA is permitted to assign the Asset
Purchase Agreement to a wholly-owned subsidiary and change the
name of such subsidiary to include the words First
Albany effective at the close of business on the business
day prior to closing and that DEPFA may communicate the
scheduled date of the closing to third parties subject to
certain conditions.
The First Albany Waiver does not constitute a waiver by the
Company or First Albany Capital of any other provisions of the
Asset Purchase Agreement.
Term
Loan and Capital Leases Waiver
On August 6, 2007, the Company entered into an Agreement
with the lender to amend the Companys obligations under
the Loan Agreement (see Short Term Bank Loans and Notes
Payable note) and Lease Obligations (see Obligations
Under Capitalized Leases note) with respect to the Depfa
and Matlin Patterson transactions (collectively
Transactions). The Agreement states that the lender
and the Company acknowledge that they do not agree on the
interpretation and /or enforcement of each of the parties
respective rights under the Loan Agreement
and/or the
Lease, therefore, the parties acknowledge and agree that neither
the lender nor the Company has waived or is waiving any of its
rights under the Loan Agreement and or the Lease except for the
waivers and or modifications set forth below. The lender agrees
to waive all Events of Default, if any, arising from the Depfa
and Matlin Patterson transactions, and the Company will take
commercially reasonable efforts but not guarantee that the
Matlin Patterson transaction will close by November 30,
2007. The Company has agreed that upon the closing of
D-85
FIRST
ALBANY COMPANIES INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
both Transactions, the Company will repay the outstanding loan
with unpaid accrued interest and all other obligations
outstanding under the Loan Agreement and all liabilities under
the Lease. If the Depfa transaction closes prior to the Matlin
Patterson transaction, the Company has agreed to prepay the
aggregate amounts of the Loan Agreement Obligations and Lease
Obligations equal to 75 percent of the net proceeds
received by First Albany Companies Inc. and upon closing of the
Matlin Patterson transaction will repay in full the remaining
amounts from the Loan Agreement Obligations and Lease
Obligations. If the Depfa transaction does not occur by
September 30, 2007 or a Depfa closing termination event
occurs, the Company will take commercially reasonable efforts to
obtain a commitment from a third party lender on or before
October 31, 2007 in order to remit to the lender amounts
necessary to pay in full the Loan Agreement Obligations and
Lease Obligations. If the Company cannot obtain a refinancing
commitment by October 31, 2007, the Company will pay on the
last day of each and every interest period after
October 31, 2007, an amount equal to the interest at the
interest rate on the unpaid principal balance and a principal
payment of $500 thousand (current principal payment is $238
thousand) of the Loan Agreement Obligations. With respect to the
Lease, the Company shall continue to perform thereunder in
accordance with its terms. Commencing from the date of the
Agreement, if (i) First Albany Companies Inc. complies in
all material respects with the terms of the Agreement,
(ii) no event of default shall occur under the Loan
Agreement or Lease Obligations as modified by the Agreement and
(iii) First Albany Companies Inc. shall use commercially
reasonable efforts to consummate the MatlinPatterson transaction
by November 30, 2007, then the lender has agreed to waive
any and all events of default arising from, in connection with,
or as a result of, the failure of the Company to comply with all
financial covenants under Section 5.04 of the Loan
Agreement.
D-86
FIRST
ALBANY COMPANIES INC.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Managements
Discussion and Analysis of Financial Condition and Results of
Operations as of
June 30, 2007
There are included or incorporated by reference in this document
statements that may constitute forward-looking
statements within the meaning of the safe harbor
provisions of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended. These forward-looking statements are usually
preceded by words such as may, will,
expect, anticipate, believe,
estimate, and continue or similar words.
All statements other than historical information or current
facts should be considered forward-looking statements.
Forward-looking statements may contain projections regarding
revenues, earnings, operations, and other financial projections,
and may include statements of future performance, strategies
objectives and the expected timing of closing of material
transactions. However, there may be events in the future which
the Company is not able to accurately predict or control which
may cause actual results to differ, possibly materially, from
the expectations set forth in the Companys forward-looking
statements. All forward-looking statements involve risks and
uncertainties, and actual results may differ materially from
those discussed as a result of various factors. Such factors
include, among others, market risk, credit risk and operating
risk. These and other risks are set forth in greater detail
throughout this document. The Company does not intend or assume
any obligation to update any forward-looking information it
makes.
Business
Overview
The Company is a full-service investment bank and institutional
securities firm. The Company operates through three primary
business segments: Equities, Fixed Income and Other.
The Companys Equities segment is comprised of Equities
Sales and Trading and Equities Investment Banking services.
Equities Sales and Trading provides equity trade execution to
institutional investors and generates revenues primarily through
commissions and sales credits earned on executing equity
transactions, trading gains and losses from market making
activities and capital committed to facilitating customer
transactions and fees received for equity research. Equities
Investment Banking generates revenues by providing financial
advisory, capital raising, mergers and acquisitions, and
restructuring services to small and mid-cap companies focusing
primarily on the healthcare, energy and powertech sectors of the
economy.
Included in the Fixed Income segment are the following groups:
Descap and Municipal Capital Markets. The Companys Fixed
Income business consists of Fixed Income Sales and Trading and
Fixed Income Investment Banking. Fixed Income Sales and Trading
provides trade execution to institutional investors and
generates revenues primarily through commissions and sales
credits earned on executing securities transactions in the
following products:
|
|
|
|
|
Mortgage-Backed and Asset-Backed Securities
|
|
|
|
|
|
High Grade Bonds (Investment grade and Government Bonds)
|
|
|
|
|
|
Municipal Bonds (Tax-exempt and Taxable Municipal Securities)
|
These products can be sold through either of the Companys
Fixed Income. Fixed Income Investment Banking generates revenues
by providing financial advisory and capital raising services to
municipalities, government agencies and other public
institutions.
In March 2007, the Company and First Albany Capital agreed to
sell the Municipal Capital Markets Group to DEPFA Bank PLC. This
group generates revenue primarily through commissions and sales
credits earned on executing sales transactions in tax exempt and
taxable municipal securities as well as by providing financial
advisory and capital raising services to municipalities,
government agencies and other public institutions. Net revenues
of this group were approximately $10.3 million in the
quarter ended June 30, 2007. Completion of this sale, which
is expected to occur in the third quarter 2007, is subject to a
variety of conditions.
D-87
The Companys Other segment includes the results from the
Companys investment portfolio, venture capital business,
and costs related to corporate overhead and support. The
Companys investment portfolio generates revenue from
unrealized gains and losses as a result of changes in the value
of the firms investments and realized gains and losses as
a result of sales of equity holdings. The Companys venture
capital business generates revenue through the management of a
private equity fund. This segment also includes results related
to the Companys investment in these private equity funds
and any gains or losses that might result from those investments.
The Company believes it has an opportunity to become one of the
premier investment banking boutiques serving the middle market,
which the Company believes is a largely under-served market. The
Company has focused on growing its middle market position by
broadening its product line through acquisition and investments
in key personnel and divesting non-core and non-growth
businesses. In the second quarter of 2006, the Company ceased
operations in the Taxable Fixed Income division due to a
changing business environment and continued revenue declines. In
the third quarter of 2006, the Company determined that it would
dispose of its Institutional Convertible Bond Arbitrage Advisory
Group due to a continued decline of assets under management. In
April 2007, the Company ceased operations of the Institutional
Convertible Bond Arbitrage Advisory Group and currently expects
that any ongoing costs related to the shutdown will be
immaterial. In the second quarter of 2007, the Company
discontinued operations in its Fixed Income Middle Markets Group
following the departure of the employees from that group. As
previously announced, First Albany Companies Inc., a New York
corporation (the Company) and its subsidiary First
Albany Capital Inc., a New York corporation (First Albany
Capital), entered into an Asset Purchase Agreement with
DEPFA BANK plc, an Irish public limited company
(DEPFA) dated as of March 6, 2007 (the
Asset Purchase Agreement) pursuant to which the
Company agreed to sell the assets of the Municipal Capital
Markets Group of First Albany Capital and the name First
Albany to DEPFA for $12 million in cash and the
related purchase by DEPFA of First Albany Capitals
municipal bond inventory (the DEPFA Transaction).
In May 2007 the Company entered into an agreement pursuant to
which an affiliate of MatlinPatterson Global Opportunities
Partners II will invest $50 million in the
Companys common equity. Under the terms of the investment
agreement, MatlinPatterson will acquire a minimum of
33,333,333 shares of common stock for $50 million,
representing an effective purchase price of $1.50 per share. The
number of shares issuable to MatlinPatterson in consideration of
the $50 million purchase price is subject to upward
adjustment if the Company incurs certain incremental
employment-related obligations as a result of the DEPFA
transaction not having closed prior to the closing of the
MatlinPatterson transaction and if the Companys
consolidated net tangible book value per share at closing is
less than $1.60. Upon the closing of the MatlinPatterson
transaction, and after giving effect to the contemplated
issuance of restricted stock units upon closing of the
MatlinPatterson transaction, MatlinPatterson is currently
expected to own between 70 and 75% of the outstanding common
stock of the Company (between 60 and 65% on a fully diluted
basis), based on the number of shares outstanding on
June 25, 2007, and after giving effect to an increase in
the number of shares to be purchased by MatlinPatterson that may
result from the adjustment provisions of the Investment
Agreement and which may further increase the number of shares of
our common stock issuable to MatlinPatterson. The
MatlinPatterson transaction is expected to close in the third
quarter of 2007, subject to approval from the First Albany
shareholders as well as customary regulatory approvals and other
closing conditions. Upon closing, MatlinPatterson will also have
three representatives on a nine member First Albany Board of
Directors.
Business
Environment
Investment banking revenues are driven by overall levels of
capital raising activities in the marketplace and particularly
the sectors and jurisdictions on which we focus. Public offering
activity in the market during the second quarter of 2007
increased over the second quarter of 2006 levels with public
follow-on activity up 26.1 percent in terms of dollar
volume while the number of transactions increased
21.2 percent. Initial public offering transactions were up
14.9 percent year-over-year and dollar volume increased
11.0 percent compared to the second quarter of 2006. The
economic sectors of healthcare, energy and powertech comprised
37.0 percent of the public follow-on activity and
42.2 percent of the total initial public offering activity
for the second quarter of 2007. Negotiated underwriting deals
from our major markets of New York, California, and Texas
increased 33.0 percent year-over-year in terms of total
dollar volume while the number of transactions increased
10.3 percent compared to the second quarter of 2006
(Source: Commscan and SDC Platinum).
D-88
In the equity markets, NYSE daily trading volume was down
9.2 percent while the NASDAQ composite daily trading volume
decreased 1.9 percent (Source: Factset). Equity Sales and
Trading revenues are dependent on trading volumes, commission
rates and the value of our research product and other services
that we can provide to our clients. Our clients ability to
now execute trades electronically through the internet and other
alternative platforms have increased commission rate pressures
on our sales and trading business. Beginning in June 2006, one
of the Companys largest institutional brokerage clients in
terms of commission revenue, Fidelity Management and Research
Company, began to separate payments for research services and
services for trading commissions for brokerage services, instead
of compensating research services through trading commissions.
The results of these changes in business environment have
decreased our commission revenues from Fidelity but have not had
a material impact on commission rates from our other
institutional clients. If other institutional equity clients
adopt similar practices, this trend can continue to have a
negative impact on our commission revenue. As of June 29,
2007, the Companys Equity research covered 168 stocks
through 13 publishing analysts focusing on the healthcare and
technology sectors.
The fixed income markets showed an improvement in the slope of
the treasury yield curve with the average net spread between the
10 year Treasury note and 2 year Treasury note being
0.043 percent compared to -0.086 in the first quarter of
2007 (Source: U.S. Treasury Department).
Financial
Overview
Three
Months Ended June 30, 2007 and 2006
First Albanys 2007 second quarter net revenues from
continuing operations were $20.1 million, compared to
$41.2 million for the second quarter of 2006. Excluding
investment gains and losses, net revenues from continuing
operations were $19.9 million, a decrease from
$40.0 million in the second quarter of 2006. For the second
quarter of 2007, the Company reported a loss from continuing
operations before income taxes of $4.2 million compared to
a loss of $3.4 million a year ago. The Company reported a
net loss of $5.0 million, or $0.32 per diluted share, for
the second quarter of 2007, compared to a net loss of
$6.2 million, or $0.40 per diluted share, for the second
quarter of 2006.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands of dollars)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Commissions
|
|
$
|
1,269
|
|
|
$
|
3,250
|
|
Principal transactions
|
|
|
9,492
|
|
|
|
17,686
|
|
Investment banking
|
|
|
8,882
|
|
|
|
18,640
|
|
Investment gains (losses)
|
|
|
266
|
|
|
|
1,196
|
|
Interest
|
|
|
4,046
|
|
|
|
3,764
|
|
Fees and other
|
|
|
457
|
|
|
|
815
|
|
Total revenues
|
|
|
24,412
|
|
|
|
45,351
|
|
Interest expense
|
|
|
4,311
|
|
|
|
4,178
|
|
Net revenues
|
|
|
20,101
|
|
|
|
41,173
|
|
Expenses (excluding
interest):
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
16,365
|
|
|
|
33,568
|
|
Clearing, settlement and brokerage
costs
|
|
|
911
|
|
|
|
1,732
|
|
Communications and data processing
|
|
|
2,551
|
|
|
|
2,932
|
|
Occupancy and depreciation
|
|
|
1,938
|
|
|
|
2,270
|
|
Selling
|
|
|
1,253
|
|
|
|
1,576
|
|
Other
|
|
|
1,325
|
|
|
|
2,543
|
|
Total expenses (excluding interest)
|
|
|
24,343
|
|
|
|
44,621
|
|
D-89
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands of dollars)
|
|
|
Loss before income taxes
|
|
|
(4,242
|
)
|
|
|
(3,448
|
)
|
Income tax expense (benefit)
|
|
|
149
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(4,391
|
)
|
|
|
(3,448
|
)
|
Loss from discontinued operations,
(net of taxes) (see Discontinued Operations note)
|
|
|
(587
|
)
|
|
|
(2,726
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,978
|
)
|
|
$
|
(6,174
|
)
|
|
|
|
|
|
|
|
|
|
Net interest income (expense):
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
4,046
|
|
|
$
|
3,764
|
|
Interest expense
|
|
|
4,311
|
|
|
|
4,178
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
|
|
$
|
(265
|
)
|
|
$
|
(414
|
)
|
|
|
|
|
|
|
|
|
|
Net
Revenue
Net revenue decreased $21.1 million, or 51.2 percent,
in the second quarter of 2007 to $20.1 million led by
declines in sales and trading related revenue of
$10.2 million, Investment banking revenue of
$9.8 million, Investment gains (losses) of
$0.9 million and net interest / other revenue of
$0.2 million. Excluding the impact of Investment gains
related to the Companys investment portfolio, net revenue
decreased 50.4 percent. A decrease in equity listed
customer transactions resulted in a 61.0 percent decrease
in commission revenue. Principal transaction revenue was down
46.3 percent compared to the second quarter of 2006 as a
result of decreases primarily in sales and trading net revenue
from NASDAQ sales and trading and Descap due to lower customer
volumes. The decline in investment banking revenue was due
primarily to a decrease in Equity Investment Banking volume
across all product groups and by decreases in public finance.
Fees and other revenue decreased 43.9 percent primarily as
a result of a decrease in management fees from the
Companys venture capital business and fee revenue from the
Municipal Capital Markets group, partially offset by an increase
in equity research fee income associated with the unbundling of
arrangements with certain institutional clients. Net interest
expense of $0.3 million represented a 36.0 percent
decrease in expense compared to the second quarter of 2006.
Non-Interest
Expense
Non-interest expense decreased $20.2 million, or
45.4 percent, to $24.3 million in the second quarter
of 2007.
Compensation and benefits expense decreased $17.2 million,
or 51.2 percent, to $16.4 million primarily driven by
the reduction of net revenues and reduced headcount. Average
full time headcount for continuing operations declined
22.0 percent from the second quarter of 2006.
Clearing, settlement, and brokerage costs of $0.9 million
represented a 47.4 percent decline versus the second
quarter of 2006. A decrease in electronic communications network
(ECN) expense, SEC transaction fee expense and floor
brokerage expense in Equities due to lower trading volumes by
both the NASDAQ and listed desks drove the variance.
Communications and data processing costs decreased
$0.4 million or 13.0 percent, due to a decrease in
data processing costs which is the result of lower trading
volumes and more favorable pricing from the firms back
office vendor and a decrease in market data services costs.
Occupancy and depreciation expense decreased 14.6 percent,
or $0.3 million, to $1.9 million due to decreases in
lease related costs of $0.2 million and depreciation of
$0.1 million. During the second quarter of 2006, the
Company incurred an additional $0.1 million in costs
primarily related to its additional office space in New York
City.
Selling expense was down 20.5 percent, or
$0.3 million, to $1.3 million in the second quarter of
2007 as a result of a decrease in travel and entertainment
expense, dues and fees expense and promotional expenses.
D-90
Other expense decreased $1.2 million, or 47.9 percent,
in the second quarter of 2007 due to decreases in legal expense
of $1.1 million. In the second quarter of 2006, the Company
incurred $0.9 million in settlements related to various
litigations.
The Company accrued $149 thousand in Income tax expense during
the second quarter of 2007 representing additional tax and
interest pursuant to FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48). The company did not recognize any
income tax benefit for the second quarter of 2006 due to the
valuation allowance recorded related to the Companys
deferred tax asset. Refer to the Income Taxes note of the
unaudited Notes to Condensed Consolidated Financial Statements
for more detail.
Product
Highlights
For presentation purposes, net revenue within each of the
businesses is classified as sales and trading, investment
banking, investment gains (losses), or net
interest / other. Sales and trading net revenue
includes commissions and principal transactions. Investment
banking includes revenue related to underwritings and other
investment banking transactions. Investment gains (losses)
reflects gains and losses on the Companys investment
portfolio. Net interest / other includes interest
income, interest expense, and fees and other revenue. Net
revenue presented within each category may differ from that
presented in the financial statements as a result of differences
in categorizing revenue within each of the revenue line items
listed below for purposes of reviewing key business performance.
Operating income (loss) is defined as net revenues less total
expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Equities
|
|
2007
|
|
|
2006
|
|
|
2007 V 2006
|
|
|
|
(In thousands of dollars)
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Trading
|
|
$
|
2,963
|
|
|
$
|
9,225
|
|
|
|
(67.9
|
)%
|
Investment Banking
|
|
|
1,857
|
|
|
|
10,534
|
|
|
|
(82.4
|
)%
|
Net Interest / Other
|
|
|
20
|
|
|
|
4
|
|
|
|
400.0
|
%
|
Total Net Revenue
|
|
$
|
4,840
|
|
|
$
|
19,763
|
|
|
|
(75.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(3,704
|
)
|
|
$
|
1,688
|
|
|
|
(319.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equities
Q2 2007 vs. Q2 2006
Equity net revenue decreased $14.9 million, or
75.5 percent, to $4.8 million in the second quarter of
2007. In Equity Sales and Trading, NASDAQ net revenue was down
74.0 percent to $1.7 million and listed net revenue of
$1.2 million was down 59.5 percent relative to the
same period in 2006. Both NASDAQ and listed desks continue to
experience declines in commission revenue due to declines in
customer trading volumes while overall commission rates remained
unchanged. Equity Investment Banking net revenues decreased
82.4 percent or $8.7 million off of a record quarter
in the second quarter of 2006. Public offering related revenue
was down $5.5 million to $1.3 million and advisory,
private placement and other revenue decreased $3.1 million
to $0.6 million. In terms of volume, Equity Investment
Banking completed five transactions in the second quarter 2007
compared to 15 transactions in the second quarter of 2006. The
75.5 percent reduction in net revenues was offset by a
61.6 percent reduction in compensation expense and
35.6 percent reduction in non-compensation expense.
Compensation as a percentage of revenue increased to
94.3 percent for the second quarter of 2007 as compared to
60.2 percent for the second quarter
D-91
of 2006. Non-Compensation expense as a percentage of net
revenue was 82.3 percent for the second quarter of 2007
compared to 31.3 percent from the same period a year ago.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
Fixed Income
|
|
2007
|
|
|
2006
|
|
|
2007 V 2006
|
|
|
|
(In thousands of dollars)
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Trading
|
|
$
|
7,637
|
|
|
$
|
11,957
|
|
|
|
(36.1
|
)%
|
Investment Banking
|
|
|
7,244
|
|
|
|
7,666
|
|
|
|
(5.5
|
)%
|
Net Interest / Other
|
|
|
(665
|
)
|
|
|
(183
|
)
|
|
|
(263.4
|
)%
|
Total Net Revenue
|
|
$
|
14,216
|
|
|
$
|
19,440
|
|
|
|
(26.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
2,523
|
|
|
$
|
3,715
|
|
|
|
(32.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Income Q2 2007 vs. Q2 2006
Fixed Income net revenue declined 26.9 percent or
$5.2 million, to $14.2 million in the second quarter
of 2007. Fixed Income Sales and Trading net revenue was down
36.1 percent to $7.6 million as a result of decreases
in net revenue from Descap of $4.9 million from a very
strong second quarter in 2006, due to several customer block
transactions that were executed in the second quarter 2006
partly offset by an increase in sales and trading revenues from
Municipal Capital Markets of $0.6 million. Fixed Income
Investment Banking net revenue of $7.2 million represented
a 5.5 percent decrease compared to the same period in 2006
primarily due to a decrease in municipal advisory related
activity. Profitability declined slightly at $1.2 million
despite the reduction in revenues of $5.2 million due
primarily to a decrease in compensation expense of
$3.7 million. Compensation as a percentage of revenue was
67.8 percent for the second quarter of 2007 compared to
68.7 percent for the same period a year ago.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
Other
|
|
2007
|
|
|
2006
|
|
|
2007 V 2006
|
|
|
|
(In thousands of dollars)
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Gains (Losses)
|
|
$
|
266
|
|
|
$
|
1,196
|
|
|
|
(77.8
|
)%
|
Net Interest / Other
|
|
|
779
|
|
|
|
774
|
|
|
|
0.7
|
%
|
Total Net Revenue
|
|
$
|
1,045
|
|
|
$
|
1,970
|
|
|
|
(47.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(3,061
|
)
|
|
$
|
(8,851
|
)
|
|
|
65.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Q2 2007 vs. Q2 2006
Other net revenue decreased $0.9 million for the second
quarter of 2007 compared to the same period in 2006 due
primarily to a reduction in Investment gains (losses) of
$0.9 million. Profitability was positively impacted
primarily by reductions in compensation and benefit expense of
$6.2 million due to the Companys effort to reduce
support headcount and legal expenses of $0.3 million
partially offset by the reduction in net revenues. Results from
the second quarter of 2006 include $4.6 million in expense
from the Companys retention program that was completed in
the third quarter of 2006. Support headcount was down
23.0 percent compared to the second quarter of 2006.
Support headcount as a percentage of total headcount remained
constant at 25.7% for the second quarter of 2007 compared to
26.0% for the second quarter of 2006.
Financial
Overview
Six
Months Ended June 30, 2007 and 2006
First Albanys net revenues from continuing operations for
the first six months of 2007 were $38.8 million, compared
to $66.2 million for the first six months of 2006.
Excluding investment gains and losses, net revenues from
continuing operations were $38.3 million, a decrease from
$71.1 million in the first six months of 2006. For
D-92
the first six months of 2007, the Company reported a loss from
continuing operations before income taxes of $9.0 million
compared to a loss of $15.6 million from the same period
last year. The Company reported a net loss of $9.4 million,
or $0.61 per diluted share, for the first six months of 2007,
compared to a net loss of $18.4 million, or $1.20 per
diluted share, for the first six months of 2006.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands of dollars)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Commissions
|
|
$
|
3,022
|
|
|
$
|
6,721
|
|
Principal transactions
|
|
|
18,348
|
|
|
|
34,048
|
|
Investment banking
|
|
|
16,472
|
|
|
|
30,364
|
|
Investment gains (losses)
|
|
|
505
|
|
|
|
(4,947
|
)
|
Interest
|
|
|
7,609
|
|
|
|
6,943
|
|
Fees and other
|
|
|
912
|
|
|
|
1,433
|
|
Total revenues
|
|
|
46,868
|
|
|
|
74,562
|
|
Interest expense
|
|
|
8,065
|
|
|
|
8,409
|
|
Net revenues
|
|
|
38,803
|
|
|
|
66,153
|
|
Expenses (excluding
interest):
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
30,918
|
|
|
|
59,864
|
|
Clearing, settlement and brokerage
costs
|
|
|
2,164
|
|
|
|
3,376
|
|
Communications and data processing
|
|
|
5,313
|
|
|
|
5,791
|
|
Occupancy and depreciation
|
|
|
3,966
|
|
|
|
5,055
|
|
Selling
|
|
|
2,460
|
|
|
|
3,364
|
|
Other
|
|
|
3,025
|
|
|
|
4,322
|
|
Total expenses (excluding interest)
|
|
|
47,846
|
|
|
|
81,772
|
|
Loss before income taxes
|
|
|
(9,043
|
)
|
|
|
(15,619
|
)
|
Income tax expense (benefit)
|
|
|
149
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(9,192
|
)
|
|
|
(15,619
|
)
|
Loss from discontinued operations,
(net of taxes) (see Discontinued Operations note)
|
|
|
(248
|
)
|
|
|
(3,200
|
)
|
Loss before cumulative effect of
change in accounting principles
|
|
|
(9,440
|
)
|
|
|
(18,819
|
)
|
Cumulative effect of accounting
change, (net of taxes $0 in 2006)
|
|
|
|
|
|
|
427
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(9,440
|
)
|
|
$
|
(18,392
|
)
|
|
|
|
|
|
|
|
|
|
Net interest income (expense):
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
7,609
|
|
|
$
|
6,943
|
|
Interest expense
|
|
|
8,065
|
|
|
|
8,409
|
|
|
|
|
|
|
|
|
|
|
Net interest income (expense)
|
|
$
|
(456
|
)
|
|
$
|
(1,466
|
)
|
|
|
|
|
|
|
|
|
|
Net
Revenue
Net revenue decreased $27.3 million, or 41.3 percent,
in the first six months of 2007 to $38.8 million led by
declines in Investment banking revenue of $13.9 million and
in sales and trading related revenue of $19.5 million
partly offset by improvements in Investment gains (losses) of
$5.5 million and net interest / other revenue of
$0.6 million. Excluding the impact of investment gains
related to the Companys investment portfolio, net revenue
decreased 46.1 percent. A decrease in equity listed
customer transactions resulted in a 55.0 percent decrease
in commission revenue. Principal transaction revenue was down
46.1 percent compared to the first six months of 2006 as a
result of decreases in sales and trading net revenue from NASDAQ
sales and trading, Descap and municipal sales and trading due to
lower customer volumes. The decline in investment banking
revenue was due to a decrease in Equity Investment Banking
volume, partially offset by increases in Fixed Income Investment
Banking from Public finance and Descap. Fees and other revenue
decreased 36.4 percent primarily as a result of a decrease
in management fees from the Companys venture capital
business, partially offset by increase in equity research fee
D-93
income associated with the unbundling of arrangements with
certain institutional clients. Net interest expense of
$0.5 million represented a 68.9 percent decrease in
expense compared to the first six months of 2006.
Non-Interest
Expense
Non-interest expense decreased $33.9 million, or
41.5 percent, to $47.8 million in the first six months
of 2007.
Compensation and benefits expense decreased $28.9 million
or 48.4 percent to $31.0 million primarily driven by
the reduction of net revenues and reduced headcount. Average
full time headcount for continuing operations declined
20.4 percent from the first six months of 2006.
Clearing, settlement, and brokerage costs of $2.2 million
represented a 35.9 percent decline versus the first six
months of 2006. A decrease in electronic communications network
(ECN) expense, SEC transaction fee expense and floor
brokerage expense in Equities due to lower trading volumes by
both the NASDAQ and listed desks drove the variance.
Communications and data processing costs decreased
$0.5 million or 8.3 percent, due to a decrease in data
processing costs of $0.4 million which is the result of
lower trading volumes and more favorable pricing from the
firms back office vendor, and a decrease in market data
services costs of $0.1 million.
Occupancy and depreciation expense decreased 21.5 percent,
or $1.1 million to $4.0 million due to decreases in
lease related costs of $0.8 million and depreciation of
$0.3 million. During the first six months of 2006, the
Company incurred an additional $0.7 million in costs
primarily related to its additional office space in New York
City.
Selling expense was down 26.9 percent or $0.9 million
to $2.5 million in the first six months of 2007 as a result
of a decrease in travel and entertainment expense, dues and fees
expense and promotional expenses.
Other expense decreased $1.3 million, or 30.0 percent,
in the first six months of 2007 due primarily to decreases in
legal expense of $1.0 million and professional fees of
$0.2 million. In the second quarter of 2006, the Company
incurred $0.9 million in settlements related to various
litigations.
The Company accrued $149 thousand in Income tax expense for the
six months ending June 2007 representing additional tax and
interest pursuant to FASB Interpretation No. 48 ,
Accounting for Uncertainty in Income Taxes
(FIN 48). The Company did not recognize any
income tax benefit for the six months ending June 2006 due to
the valuation allowance recorded related to the Companys
deferred tax asset. Refer to the Income Taxes note of the
unaudited Notes to Condensed Consolidated Financial Statement
for more detail.
Product
Highlights
For presentation purposes, net revenue within each of the
businesses is classified as sales and trading, investment
banking, investment gains (losses), or net
interest / other. Sales and trading net revenue
includes commissions and principal transactions. Investment
banking includes revenue related to underwritings and other
investment banking transactions. Investment gains (losses)
reflects gains and losses on the Companys investment
portfolio. Net interest / other includes interest
income, interest expense, and fees and other revenue. Net
revenue presented within each category may differ from that
presented in the financial statements as a result of differences
in categorizing revenue within each of the revenue line items
listed below for purposes of reviewing key business performance.
Operating income (loss) is defined as net revenue less total
expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
Equities
|
|
2007
|
|
|
2006
|
|
|
2007 V 2006
|
|
|
|
(In thousands of dollars)
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Trading
|
|
$
|
7,979
|
|
|
$
|
20,344
|
|
|
|
(60.8
|
)%
|
Investment Banking
|
|
|
4,109
|
|
|
|
18,854
|
|
|
|
(78.2
|
)%
|
Net Interest / Other
|
|
|
33
|
|
|
|
(4
|
)
|
|
|
925.0
|
%
|
Total Net Revenue
|
|
$
|
12,121
|
|
|
$
|
39,194
|
|
|
|
(69.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(6,089
|
)
|
|
$
|
3,767
|
|
|
|
(261.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D-94
Equities
YTD 2007 vs. YTD 2006
Net revenues in Equities decreased $27.1 million, or
69.1 percent, to $12.1 million in the first six months
of 2007. In Equity Sales and Trading, NASDAQ net revenue was
down 66.1 percent to $4.9 million and listed net
revenue declined 52.5 percent to $2.8 million relative
to the same period in 2006. Equity Investment Banking net
revenues decreased 78.2 percent or $14.7 million
versus the same period in the prior year. Public offering
related revenue was down $8.7 million to $1.5 million
and advisory, private placement and other revenue decreased
$6.0 million to $2.6 million. In terms of volume,
Equity Investment Banking completed 13 transactions in the first
six months of 2007 compared to 26 transactions in the first six
months of 2006. The 69.1 percent reduction in net revenues
was offset by a 59.5 percent reduction in compensation
expense and a 26.6 percent reduction in non-compensation
expense. Compensation as a percentage of revenue was
79.0 percent for the first six months of 2007 as compared
to 60.3 percent for the first six months of 2006.
Non-Compensation expense as a percentage of net revenue was
71.3 percent for the first six months of 2007 compared to
30.0 percent from the same period a year ago.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
Fixed Income
|
|
2007
|
|
|
2006
|
|
|
2007 V 2006
|
|
|
|
(In thousands of dollars)
|
|
|
Net
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Trading
|
|
$
|
13,492
|
|
|
$
|
20,407
|
|
|
|
(33.9
|
)%
|
Investment Banking
|
|
|
12,441
|
|
|
|
11,239
|
|
|
|
10.7
|
%
|
Net Interest / Other
|
|
|
(1,408
|
)
|
|
|
(585
|
)
|
|
|
(140.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenue
|
|
$
|
24,525
|
|
|
$
|
31,061
|
|
|
|
(21.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
3,689
|
|
|
$
|
3,750
|
|
|
|
(1.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Income YTD 2007 vs. YTD 2006
Fixed Income net revenue declined 21.0 percent or
$6.5 million, to $24.5 million in the first six months
of 2007. Decreases in sales and trading revenue of
6.9 million and net interest / other of
$0.8 million overshadowed an increase in Investment Banking
revenue of $1.2 million. Fixed Income Sales and Trading net
revenue was down 33.9 percent to $13.5 million
primarily as a result of decreases in net revenue from municipal
sales and trading of $1.3 million and Descap sales and
trading revenues of $5.6 million due to several customer
block transactions that were executed in the second quarter of
2006. Fixed Income Investment Banking net revenue of
$12.4 million represented a 10.7 percent increase
compared to the same period in 2006 primarily due to an increase
in Public Finance net revenue of $0.7 million and an
increase in Descap net revenue of $0.5 million.
Profitability remained relatively flat at $0.1 million
despite the reduction in revenues of $6.5 million due
primarily to a decrease in compensation expense of
$5.7 million. Compensation as a percentage of revenue was
68.5 percent for the first six months of 2007 compared to
72.5 percent for the same period a year ago.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
Other
|
|
2007
|
|
|
2006
|
|
|
2007 V 2006
|
|
|
|
(In thousands of dollars)
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Gains (Losses)
|
|
$
|
505
|
|
|
$
|
(4,947
|
)
|
|
|
110.2
|
%
|
Net Interest / Other
|
|
|
1,652
|
|
|
|
845
|
|
|
|
95.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Revenue
|
|
$
|
2,157
|
|
|
$
|
(4,102
|
)
|
|
|
152.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(6,643
|
)
|
|
$
|
(23,136
|
)
|
|
|
71.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
YTD 2007 vs. YTD 2006
Other net revenue increased $6.3 million for the first six
months of 2007 compared to the same period in 2006 due primarily
to an improvement in Investment gains (losses) of
$5.5 million. Profitability was positively impacted
D-95
primarily by the improvement in net revenue, a reduction in
compensation and benefit expense of $9.1 million, a
reduction in occupancy and depreciation expense of
$0.6 million and a reduction in other expense of
$0.4 million. Results from the second quarter of 2006
include $6.0 million in expense from the Companys
retention program that was completed in the third quarter of
2006. Support headcount was down 22.8 percent compared to
the first six months of 2006. Support headcount as a percentage
of total headcount remained constant at 25.1% for the first six
months of 2007 compared to 25.9% for the first six months of
2006.
Liquidity
and Capital Resources
A substantial portion of the Companys assets, similar to
other brokerage and investment banking firms, are liquid,
consisting of cash and assets readily convertible into cash.
These assets are financed primarily by the Companys
payables to brokers and dealers, bank lines of credit and
customer payables. The level of assets and liabilities will
fluctuate as a result of the changes in the level of positions
held to facilitate customer transactions and changes in market
conditions.
The Company has experienced recurring losses and as of
June 30, 2007, the Company had cash of approximately
$3.5 million and working capital of approximately
$17 million. As a result of continuing losses that have
impacted the Companys liquidity and net capital, and in
order to recapitalize and reposition itself, the Company has
entered into an asset sale agreement with DEPFA Bank PLC
(DEPFA)for the sale of the Municipal Capital Markets
Group of the Companys subsidiary, First Albany Capital
Inc. (First Albany Capital) for $12 million.
The Company has also entered into an investment agreement with
an affiliate of MatlinPatterson Global Opportunities
Partners II to receive a $50 million equity investment
(see Commitments and Contingencies note). The
Company believes that the proceeds from these transactions will
provide the Company with resources to invest in future growth,
build on its investment product and services strengths, and
better meet the needs of its clients. If these transactions are
not completed, the Company may be forced to preserve its cash
position through a combination of cost reduction measures and
sales of assets at values that may be significantly below their
potential worth or augment our cash through additional dilutive
financings, and there can be no assurance that we could obtain
funds on terms that are as favorable as the terms of these
transactions or at all.
In March 2007, the Company and First Albany Capital agreed to
sell the Municipal Capital Markets Group to DEPFA for
$12 million in cash, subject to adjustment. As part of the
transaction, DEPFA will purchase First Albany Capitals
municipal bond inventory used in the business of the Municipal
Capital Markets Group, which is expected to range in value at
closing from between $150 million to $200 million. The
Company intends that it will use the proceeds from these
transactions to repay in full associated short-term borrowings
used to finance the bond inventory as well as approximately
$11 million in long-term debt. After debt repayment and
transactional and associated restructuring costs, the Company
anticipates having $12 million in cash, which it intends to
use to fund investments for growth. Completion of the
transaction is subject to a variety of conditions however, and
consequently, the sale may not be completed.
In May 2007 the Company entered into an agreement pursuant to
which an affiliate of MatlinPatterson Global Opportunities
Partners II will invest $50 million in the
Companys common equity. Under the terms of the investment
agreement, MatlinPatterson will acquire a minimum of
33,333,333 shares of common stock for $50 million,
representing an effective purchase price of $1.50 per share. The
number of shares issuable to MatlinPatterson in consideration of
the $50 million purchase price is subject to upward
adjustment if the Company incurs certain incremental
employment-related obligations as a result of the DEPFA
transaction not having closed prior to the closing of the
MatlinPatterson transaction and if the Companys
consolidated net tangible book value per share at closing is
less than $1.60. Upon the closing of the MatlinPatterson
transaction, and after giving effect to the contemplated
issuance of restricted stock units upon closing of the
MatlinPatterson transaction, MatlinPatterson is currently
expected to own between 70 and 75% of the outstanding common
stock of the Company (between 60 and 65% on a fully diluted
basis), based on the number of shares outstanding on
June 25, 2007, and after giving effect to an increase in
the number of shares to be purchased by MatlinPatterson that may
result from the adjustment provisions of the Investment
Agreement and which may further increase the number of shares of
our common stock issuable to MatlinPatterson. The
MatlinPatterson transaction is expected to close in the third
quarter of 2007, subject to approval from the First Albany
shareholders as well as customary regulatory approvals and other
closing
D-96
conditions. Upon closing, MatlinPatterson will also have three
representatives on a nine member First Albany Board of Directors.
Subsequent
Events
On July 25, 2007, the Company, First Albany Capital and
DEPFA entered into two waiver letter agreements pursuant to
which DEPFA waived certain provisions of the Asset Purchase
Agreement at the request of the Company, and the Company and
First Albany Capital waived certain provisions of the Asset
Purchase Agreement at the request of DEPFA.
DEPFA
Waiver
On July 25, 2007, the Company and First Albany Capital
entered into a Notice and Waiver Letter Agreement with DEPFA
(the DEPFA Waiver), pursuant to which DEPFA agreed
to waive the condition in the Asset Purchase Agreement requiring
that the Company include, in connection with the sale of the
name First Albany, an amendment to its certificate
of incorporation changing its corporate name to a name that does
not include the words First Albany or FA
or any derivatives thereof (the Charter Amendment)
as a management proposal to be voted on by the shareholders at
its next annual meeting, to be held no later than June 30,
2007. This waiver allows the Company to hold its annual meeting
of shareholders after June 30, 2007, without including the
Charter Amendment, and still comply with the terms of the Asset
Purchase Agreement. The Charter Amendment is expected to be
voted on by the Companys shareholders at a special meeting
following the annual meeting.
In addition, the DEPFA Waiver provides that on the tenth
business day following the satisfaction or waiver of the closing
conditions in the Asset Purchase Agreement, the Company shall
cause its subsidiaries to change their corporate names to a name
that does not include the words First Albany or
FA or any derivative thereof and the Company shall
cause its business to be operated under a trade name that does
not include the name First Albany or FA
or any derivatives thereof.
Pursuant to the DEPFA Waiver, DEPFA also waived the provision in
the Asset Purchase Agreement requiring First Albany Capital to
maintain Tentative Net Capital (as defined in the Asset Purchase
Agreement) of not less than $18,000,000, in exchange for First
Albany Capital providing DEPFA daily copies of certain of its
capital reports until the closing of the DEPFA Transaction. This
allows First Albany Capital to maintain Tentative Net Capital of
less than $18,000,000 without breaching the Asset Purchase
Agreement.
License
Agreement
The DEPFA Waiver provides that DEPFA and the Company shall
entered into a license agreement (the License
Agreement) to allow the Company to operate under a trade
name but continue to use the name First Albany in
certain instances in the event the DEPFA Transaction closes
before the Charter Amendment is approved at the special meeting
or in the event the Charter Amendment is not approved at the
special meeting. In such event, DEPFA will grant the Company a
non-exclusive, royalty-free, non-transferable, non-sublicensable
license of the common law trademark First Albany to
allow the Company to continue to use the name First
Albany in any context where use of the Companys
official corporate name is required by applicable law and where
the Company must use the name in order to identify itself in the
ordinary conduct of its business. If the Charter Amendment is
not effected within sixty days following the closing of the
DEPFA Transaction, then the Company will pay DEPFA an annual
royalty fee of $50,000 until the License Agreement terminates in
accordance with its terms.
Voting
Agreement
As a condition to the DEPFA Waiver, DEPFA and MatlinPatterson FA
Acquisition LLC, a Delaware limited liability company
(MatlinPatterson) entered into a voting agreement
(the Voting Agreement) dated as of June 29,
2007. As previously announced, MatlinPatterson entered into an
investment agreement with the Company on May 14, 2007
pursuant to which MatlinPatterson agreed to purchase 33,333,333
newly-issued shares of the Companys common stock in a
private placement for $50 million (the
MatlinPatterson Transaction). Pursuant to the Voting
Agreement, MatlinPatterson agreed to vote its shares of the
Companys common stock in favor of the
D-97
Charter Amendment and not to solicit, encourage or recommend to
other shareholders of the Company that they vote their shares of
common stock in any contrary manner or they not vote their
shares of common stock at all.
The DEPFA Waiver does not constitute a waiver by DEPFA of any
other provisions of the Asset Purchase Agreement.
First
Albany Waiver
On July 25, 2007, the Company and First Albany Capital
entered into a Notice and Waiver Letter Agreement with DEPFA
(the First Albany Waiver), pursuant to which the
Company and First Albany Capital agreed to waive the provision
in Section 4.1 of the Asset Purchase Agreement requiring
the closing to be consummated on the third business day
following satisfaction or waiver of the closing conditions in
the Asset Purchase Agreement and the Company and First Albany
Capital agreed that the closing shall be consummated on the
tenth business day following satisfaction or waiver of such
conditions.
The Company and First Albany Capital also agreed to waive the
provision in the Asset Purchase Agreement requiring DEPFA to
offer to interview each employee in good standing in the
Companys Municipal Capital Markets Division with respect
to a potential offer of employment, subject to DEPFA providing
to each employee a standard form of job application and job
description template to be returned to DEPFA. The First Albany
Waiver also provides that DEPFA is permitted to assign the Asset
Purchase Agreement to a wholly-owned subsidiary and change the
name of such subsidiary to include the words First
Albany effective at the close of business on the business
day prior to closing and that DEPFA may communicate the
scheduled date of the closing to third parties subject to
certain conditions.
The First Albany Waiver does not constitute a waiver by the
Company or First Albany Capital of any other provisions of the
Asset Purchase Agreement.
Term
Loan and Capital Lease Waiver
On August 6, 2007, the Company entered into an Agreement
with the lender to amend the Companys obligations under
the Loan Agreement (see Short Term Bank Loans and Notes
Payable note) and Lease Obligations (see Obligations
Under Capitalized Leases note) with respect to the Depfa
and Matlin Patterson transactions (collectively
Transactions). The Agreement states that the lender
and the Company acknowledge that they do not agree on the
interpretation and /or enforcement of each of the parties
respective rights under the Loan Agreement
and/or the
Lease, therefore, the parties acknowledge and agree that neither
the lender nor the Company has waived or is waiving any of its
rights under the Loan Agreement and or the Lease except for the
waivers and or modifications set forth below. The lender agrees
to waive all Events of Default, if any, arising from the Depfa
and Matlin Patterson transactions, and the Company will take
commercially reasonable efforts but not guarantee that the
Matlin Patterson transaction will close by November 30,
2007. The Company has agreed that upon the closing of both
Transactions, the Company will repay the outstanding loan with
unpaid accrued interest and all other obligations outstanding
under the Loan Agreement and all liabilities under the Lease. If
the Depfa transaction closes prior to the Matlin Patterson
transaction, the Company has agreed to prepay the aggregate
amounts of the Loan Agreement Obligations and Lease Obligations
equal to 75 percent of the net proceeds received by First
Albany Companies Inc. and upon closing of the Matlin Patterson
transaction will repay in full the remaining amounts from the
Loan Agreement Obligations and Lease Obligations. If the Depfa
transaction does not occur by September 30, 2007 or a Depfa
closing termination event occurs, the Company will take
commercially reasonable efforts to obtain a commitment from a
third party lender on or before October 31, 2007 in order
to remit to the lender amounts necessary to pay in full the Loan
Agreement Obligations and Lease Obligations. If the Company
cannot obtain a refinancing commitment by October 31, 2007,
the Company will pay on the last day of each and every interest
period after October 31, 2007, an amount equal to the
interest at the interest rate on the unpaid principal balance
and a principal payment of $500 thousand (current principal
payment is $238 thousand) of the Loan Agreement Obligations.
With respect to the Lease, the Company shall continue to perform
thereunder in accordance with its terms. Commencing from the
date of the Agreement, if (i) First Albany Companies Inc.
complies in all material respects with the terms of the
Agreement, (ii) no event of default shall occur under the
Loan Agreement or Lease Obligations as modified by the Agreement
and (iii) First Albany Companies Inc. shall use
commercially reasonable
D-98
efforts to consummate the MatlinPatterson transaction by
November 30, 2007, then the lender has agreed to waive any
and all events of default arising from, in connection with, or
as a result of, the failure of the Company to comply with all
financial covenants under Section 5.04 of the Loan
Agreement.
Short-term
Bank Loans and Notes Payable
Short-term bank loans are made under a variety of bank lines of
credit totaling $210 million, of which approximately
$139 million was outstanding at June 30, 2007. These
bank lines of credit consist of credit lines that the Company
has been advised are available solely for financing securities
inventory but for which no contractual lending obligation exist
and are repayable on demand. These loans are collateralized by
eligible securities, including Company-owned securities, subject
to certain regulatory formulas. Typically, these lines of credit
allow the Company to borrow up to 85% to 90% of the market value
of the collateral. These loans bear interest at variable rates
based primarily on the Federal Funds interest rate. The weighted
average interest rates on these loans were 5.80% and 5.74% at
June 30, 2007 and December 31, 2006, respectively. At
June 30, 2007, short-term bank loans were collateralized by
Company-owned securities, which are classified as securities
owned, of $159 million.
The Companys notes payable include a $12.0 million
Term Loan to finance the acquisition of Descap Securities, Inc.
The interest rate on this term loan is 2.40% over the
30-day
London InterBank Offered Rate (LIBOR) (5.38% at
June 30, 2007). Interest only was payable for the first six
months, and thereafter monthly payments of $238 thousand in
principal and interest over the life of the loan which matures
on May 14, 2011. The Term Loan agreement contains various
covenants, as defined in the agreement. The Agreement requires
that the Companys modified total funded debt to EBITDAR
not to exceed 1.75 to 1 (for the twelve month period ending
June 30, 2007, modified total funded indebtedness EBITDAR
ratio was 0.58 to 1). In addition, the modified Term Loan
agreement requires operating cash flow to total fixed charges
(as defined) to be not less than 1.15 to 1 (for the twelve-month
period ending June 30, 2007, the operating cash flow to
total fixed charge ratio was 1.41 to 1). EBITDAR is defined as
earnings before interest, taxes, depreciation, amortization and
lease expense plus pro forma adjustments. The definition of
operating cash flow includes the payment of cash dividends;
therefore, the Companys ability to pay cash dividends in
the future may be impacted by the covenant.
Principal payments for the Term Loan are due as follows:
|
|
|
|
|
|
|
(In thousands of
|
|
|
|
dollars)
|
|
|
2007 (remaining)
|
|
$
|
1,429
|
|
2008
|
|
|
2,857
|
|
2009
|
|
|
2,857
|
|
2010
|
|
|
2,857
|
|
2011
|
|
|
1,238
|
|
|
|
|
|
|
Total principal payments remaining
|
|
$
|
11,238
|
|
|
|
|
|
|
Regulatory
As of June 30, 2007, First Albany Capital and Descap, both
registered broker-dealer subsidiaries of First Albany Companies
Inc., were in compliance with the net capital requirements of
the Securities and Exchange Commission. The net capital rules
restrict the amount of a broker-dealers net assets that
may be distributed. Also, a significant operating loss or
extraordinary charge against net capital may adversely affect
the ability of the Companys broker-dealer subsidiaries to
expand or even maintain their present levels of business and the
ability to support the obligations or requirements of the
Company. As of June 30, 2007, First Albany Capital had net
capital of $9.5 million, which exceeded minimum net capital
requirements by $8.5 million, while Descap had net capital
of $4.3 million, which exceeded minimum net capital
requirements by $4.0 million.
The Company enters into underwriting commitments to purchase
securities as part of its investment banking business. Also, the
Company may purchase and sell securities on a when-issued basis.
As of June 30, 2007, the Company had $42 thousand in
outstanding underwriting commitments and had purchased
$4.7 million and sold $33.9 million securities on a
when-issued basis.
D-99
Investments
and Commitments
As of June 30, 2007, the Company had a commitment to invest
up to an additional $2.4 million in FA Technology Ventures,
L.P. (the Partnership). The investment period
expired in July 2006; however, the General Partner may continue
to make capital calls up through July 2011 for additional
investments in portfolio companies and for the payment of
management fees. The Company intends to fund this commitment
from working capital. The Partnerships primary purpose is
to provide investment returns consistent with risks of investing
in venture capital. In addition to the Company, certain other
limited partners of the Partnership are officers or directors of
the Company. The majority of the commitments to the Partnership
are from non-affiliates of the Company.
The General Partner for the Partnership is FATV GP LLC. The
General Partner is responsible for the management of the
Partnership, including among other things, making investments
for the Partnership. The members of the General Partnership are
George McNamee, Chairman of the Company, First Albany Enterprise
Funding, Inc., a wholly owned subsidiary of the Company, and
other employees of the Company or its subsidiaries.
Mr. McNamee is required under the Partnership agreement to
devote a majority of his business time to the conduct of the
affairs of the Partnership and any parallel funds. Subject to
the terms of the Partnership Agreement, under certain
conditions, the General Partnership is entitled to share in the
gains received by the Partnership in respect of its investment
in a portfolio company. The General Partner will receive a
carried interest on customary terms. The General Partner has
contracted with FA Technology Ventures Corporation
(FATV), a wholly owned subsidiary of the Company, to
act as an investment advisor to the General Partner.
As of June 30, 2007, the Company had an additional
commitment to invest up to $0.2 million in funds that
invest in parallel with the Partnership, which it intends to
fund, at least in part, through current and future Employee
Investment Funds (EIF). The investment period
expired in July 2006, but the General Partner may continue to
make capital calls up through July 2011 for additional
investments in portfolio companies and for the payment of
management fees. The Company anticipates that the portion of the
commitment that is not funded by employees through the EIF will
be funded by the Company through working capital.
Over the last several years, the Company funded much of its
operating losses through the sale of its publicly held
investments. The Companys current investment portfolio
consists almost entirely of its interest in the Partnership, the
General Partner, and the EIF. Such investments are relatively
illiquid and the Company may not realize any return on these
investments for some time or at all.
Contingent
Consideration
On May 14, 2004, the Company acquired 100 percent of
the outstanding common shares of Descap Securities Inc., a New
York-based broker-dealer and investment bank. Per the
acquisition agreement, the Sellers can receive future contingent
consideration (Earnout Payment) based on the
following: for each of the years ending May 31, 2006 and
May 31, 2007, if Descaps Pre-Tax Net Income (as
defined) (i) is greater than $10 million, the Company
shall pay to the Sellers an aggregate amount equal to fifty
percent (50%) of Descaps Pre-Tax Net Income for such
period, or (ii) is equal to or less than $10 million,
the Company shall pay to the Sellers an aggregate amount equal
to forty percent (40%) of Descaps Pre-Tax Net Income for
such period. Each Earnout Payment shall be paid in cash,
provided that the Buyer shall have the right to pay up to
seventy-five percent (75%) of each Earnout Payment in the form
of shares of Company Stock. The amount of any Earnout Payment
that the Company elects to pay in the form of Company Stock
shall not exceed $3.0 million for any Earnout Period and in
no event shall such amounts exceed $6.0 million in the
aggregate for all Earnout Payments. Based upon Descaps
Pre-Tax Net Income from June 1, 2005 through May 31,
2006, $1.0 million of contingent consideration has been
accrued at June 30, 2007. Also, based upon Descaps
pre-tax net income from June 1, 2006 to May 31, 2007,
no contingent consideration would be payable to the sellers.
Legal
Proceedings
From time to time the Company and its subsidiaries are involved
in legal proceedings or disputes. An adverse result or
development in respect of these matters, whether in settlement
or as a result of litigation or arbitration, could materially
adversely affect the Companys consolidated financial
condition, results of operations, cash flows and liquidity.
D-100
In the ordinary course of business, the Company is called upon
from time to time to answer inquiries and subpoenas on a number
of different issues by self-regulatory organizations, the SEC
and various state securities regulators. In recent years, there
has been an increased incidence of regulatory enforcement in the
United States involving organizations in the financial services
industry, and the Company is no exception. We are not always
aware of the subject matter of the particular inquiry or the
ongoing status of a particular inquiry. As a result of some of
these inquiries, the Company has been cited for technical
operational deficiencies. Although there can be no assurance as
to the eventual outcome of these proceedings, none of these
inquiries has to date had a material effect upon the business or
operations of the Company.
Tax
Valuation Allowance
At June 30, 2007, the Company had a valuation allowance of
approximately $23 million compared to $21.8 million at
December 31, 2006. The valuation allowance was established
as a result of weighing all positive and negative evidence,
including the Companys history of cumulative losses over
at least the past three years and the difficulty of forecasting
future taxable income. As a result, the Company does not
anticipate that the payment of future taxes will have a
significant negative impact on its liquidity and capital
resources.
OFF
BALANCE SHEET ARRANGEMENTS
Information concerning the Companys off balance sheet
arrangements are included in the Contractual Obligations section
which follows. Except as set forth in such sections, the Company
has no off balance sheet arrangements.
CONTRACTUAL
OBLIGATIONS
The Company has obligations and commitments to make future
payments in connection with our debt, leases, compensation and
retention programs and investments. See Notes to unaudited
condensed consolidated financial statements for additional
disclosures related to our commitments.
The following table sets forth these contractual obligations by
fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
Thereafter
|
|
|
All Others
|
|
|
|
(In thousands of dollars)
|
|
|
Short-term bank loans
|
|
$
|
139,065
|
|
|
$
|
139,065
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Long term debt(1)
|
|
|
11,238
|
|
|
|
1,429
|
|
|
|
2,857
|
|
|
|
2,857
|
|
|
|
2,857
|
|
|
|
1,238
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
(including interest)
|
|
|
3,117
|
|
|
|
758
|
|
|
|
999
|
|
|
|
676
|
|
|
|
460
|
|
|
|
213
|
|
|
|
11
|
|
|
|
|
|
Operating leases (net of sublease
rental income)(2)
|
|
|
22,214
|
|
|
|
2,893
|
|
|
|
5,231
|
|
|
|
2,731
|
|
|
|
2,418
|
|
|
|
2,339
|
|
|
|
6,602
|
|
|
|
|
|
Guaranteed compensation payments(3)
|
|
|
3,289
|
|
|
|
515
|
|
|
|
2,449
|
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation payments(4)
|
|
|
2,297
|
|
|
|
|
|
|
|
913
|
|
|
|
927
|
|
|
|
457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership and employee
investment funds commitments(5)
|
|
|
2,600
|
|
|
|
2,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt(6)
|
|
|
2,962
|
|
|
|
|
|
|
|
1,299
|
|
|
|
465
|
|
|
|
287
|
|
|
|
108
|
|
|
|
803
|
|
|
|
|
|
Unrecognized tax benefits(7)
|
|
|
898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
187,680
|
|
|
$
|
147,260
|
|
|
$
|
13,748
|
|
|
$
|
7,981
|
|
|
$
|
6,479
|
|
|
$
|
3,898
|
|
|
$
|
7,416
|
|
|
$
|
898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Company has a note payable which has principal payments
associated with it (see Notes to the unaudited Condensed
Consolidated Financial Statements). |
|
|
|
(2) |
|
The Companys headquarters and sales offices, and certain
office and communication equipment, are leased under
non-cancelable operating leases, certain of which contain
escalation clauses and which expire at various |
D-101
|
|
|
|
|
times through 2015 (see Notes to the unaudited Condensed
Consolidated Financial Statements). The 2012 obligation is
$2,317 and the remaining obligation thereafter is $4,285. |
|
|
|
(3) |
|
Guaranteed compensation payments primarily include various
employment and consulting compensation arrangements. |
|
|
|
(4) |
|
Deferred compensation payments are comprised of cash awards that
vest over a three year period. |
|
|
|
(5) |
|
The Company has a commitment to invest in FA Technology
Ventures, LP (the Partnership) and an additional
commitment to invest in funds that invest in parallel with the
Partnership (see Notes to the unaudited Condensed Consolidated
Financial Statements). |
|
|
|
(6) |
|
A select group of management and highly compensated employees
are eligible to participate in the First Albany Companies Inc.
Deferred Compensation Plan for Key Employees (the
Plan). The employees enter into subordinate loans
with the Company to provide for the deferral of compensation and
employer allocations under the Plan. The accounts of the
participants of the Plan are credited with earnings and/or
losses based on the performance of various investment benchmarks
selected by the participants. Maturities of the subordinated
debt are based on the distribution election made by each
participant, which may be deferred to a later date by the
participant. The 2012 obligation is $207 and the remaining
obligation thereafter is $596. |
|
|
|
(7) |
|
At June 30, 2007 the Company has a reserve for unrecognized
tax benefits including related interest of $0.9 million.
The reserve has two components; $0.8 million is recorded as
a liability on the Companys books while $0.1 million
is recorded as a reduction to the valuation allowance. The
Company is unable at this time to estimate the periods in which
potential cash outflows relating to these liabilities would
occur; because, the timing of the cash flows are dependant upon
audit by the relevant taxing authorities. The Company does not
currently have any tax returns under examination. (see Notes to
the unaudited Condensed Consolidated Financial Statements). |
NEW
ACCOUNTING STANDARDS
SFAS No. 157,
Fair Value Measurements
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair Value
Measurements. This statement defines fair value, establishes
a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value
measurements. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after
November 15, 2007. Therefore, SFAS No. 157 will
be effective for our fiscal year beginning January 1, 2008.
The Company is currently evaluating the impacts of
SFAS No. 157.
SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115
In February 2007, the Financial Accounting Standards Board
(FASB) issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115. This Statement permits entities to choose to
measure many financial instruments and certain other items at
fair value. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility
in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge
accounting provisions. This Statement is expected to expand the
use of fair value measurement, which is consistent with the
Boards long-term measurement objectives for accounting for
financial instruments. SFAS No. 159 is effective for
financial statements issued for fiscal years beginning after
November 15, 2007. Therefore, SFAS No. 159 will
be effective for our fiscal year beginning January 1, 2008.
The Company is currently evaluating the impacts of
SFAS No. 159.
D-102
FIRST
ALBANY COMPANIES INC.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative
and Qualitative Disclosures about Market Risk as of
June 30, 2007
MARKET
RISK
Market risk generally represents the risk of loss that may
result from the potential change in the value of a financial
instrument as a result of fluctuations in interest rates and
equity prices, changes in the implied volatility of interest
rates and equity prices and also changes in the credit ratings.
Market risk is inherent to both derivative and non-derivative
financial instruments, and accordingly, the scope of the
Companys market risk management procedures extends beyond
derivatives to include all market-risk-sensitive financial
instruments. The Companys exposure to market risk is
directly related to its role as a financial intermediary in
customer-related transactions and to its proprietary trading.
The Company trades tax exempt and taxable debt obligations,
including U.S. Treasury bills, notes, and bonds;
U.S. Government agency notes and bonds; bank certificates
of deposit; mortgage-backed securities, and corporate
obligations. The Company is also an active market maker in the
NASDAQ equity markets. In connection with these activities, the
Company may be required to maintain inventories in order to
ensure availability and to facilitate customer transactions. In
connection with some of these activities, the Company attempts
to mitigate its exposure to such market risk by entering into
hedging transactions, which may include highly liquid future
contracts, options and U.S. Government and federal agency
securities.
The following table categorizes the Companys market risk
sensitive financial instruments by type of security and maturity
date. The amounts shown are net of long and short positions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In thousands of dollars)
|
|
|
Fair value of securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
80
|
|
|
$
|
42
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
25,659
|
|
|
$
|
25,783
|
|
State and municipal bonds
|
|
|
60
|
|
|
|
997
|
|
|
|
91
|
|
|
|
7,623
|
|
|
|
2,398
|
|
|
|
12,107
|
|
|
|
116,675
|
|
|
|
139,951
|
|
US Government and federal agency
obligations
|
|
|
1
|
|
|
|
(1,279
|
)
|
|
|
(7,581
|
)
|
|
|
(4,693
|
)
|
|
|
420
|
|
|
|
(6,777
|
)
|
|
|
35,501
|
|
|
|
15,592
|
|
Subtotal
|
|
|
62
|
|
|
|
(282
|
)
|
|
|
(7,410
|
)
|
|
|
2,972
|
|
|
|
2,818
|
|
|
|
5,331
|
|
|
|
177,835
|
|
|
|
181,326
|
|
Equity securities
|
|
|
4,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,167
|
|
Investments
|
|
|
12,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,403
|
|
Fair value of securities
|
|
$
|
16,632
|
|
|
$
|
(282
|
)
|
|
$
|
(7,410
|
)
|
|
$
|
2,972
|
|
|
$
|
2,818
|
|
|
$
|
5,331
|
|
|
$
|
177,835
|
|
|
$
|
197,896
|
|
Following is a discussion of the Companys primary market
risk exposures as of June 30, 2007, including a discussion
of how those exposures are currently managed.
Interest
Rate Risk
Interest rate risk is a consequence of maintaining inventory
positions and trading in interest-rate-sensitive financial
instruments. In connection with trading activities, the Company
exposes itself to interest rate risk, arising from changes in
the level or volatility of interest rates or the shape and slope
of the yield curve. The Companys fixed income activities
also expose it to the risk of loss related to changes in credit
spreads. The Company attempts to hedge its exposure to interest
rate risk primarily through the use of U.S. Government
securities, highly liquid futures and options designed to reduce
the Companys risk profile.
A sensitivity analysis has been prepared to estimate the
Companys exposure to interest rate risk of its net
inventory positions. The fair market value of these securities
included in the Companys inventory at June 30, 2007
was $119.6 million and $153.9 million at
December 31, 2006 (net of municipal futures positions).
Interest rate risk is estimated as the potential loss in fair
value resulting from a hypothetical one-half percent change in
interest rates. At June 30, 2007, the potential change in
fair value using a yield to maturity calculation and assuming
this hypothetical change, was $6.7 million and at year-end
2006 was $8.3 million. The actual risks and results of such
adverse effects may differ substantially.
D-103
Equity
Price Risk
The Company is exposed to equity price risk as a consequence of
making markets in equity securities. Equity price risk results
from changes in the level or volatility of equity prices, which
affect the value of equity securities or instruments that derive
their value from a particular stock. The Company attempts to
reduce the risk of loss inherent in its inventory of equity
securities by monitoring those security positions constantly
throughout each day.
Marketable equity securities included in the Companys
inventory were recorded at a fair value of $4.2 million in
securities owned at June 30, 2007 and $13.4 million in
securities owned at December 31, 2006, and have exposure to
equity price risk. This risk is estimated as the potential loss
in fair value resulting from a hypothetical 10 percent
adverse change in prices quoted by stock exchanges, and amounts
to $0.4 million at June 30, 2007 and $1.3 million
at year-end 2006. The Companys investment portfolio,
excluding the consolidation of Employee Investment Fund (see
Investments note to the unaudited Consolidated
Financial Statements), at June 30, 2007 had a fair market
value of $12.4 and at December 31, 2006, had a fair market
value of $10.9 million. This equity price risk is also
estimated as the potential loss in fair value resulting from a
hypothetical 10 percent adverse change in equity security
prices or valuations, and amounts to $1.2 million at
June 30, 2007 and $1.1 million at December 31,
2006. The actual risks and results of such adverse effects may
differ substantially.
CREDIT
RISK
The Company is engaged in various trading and brokerage
activities whose counter parties primarily include
broker-dealers, banks, and other financial institutions. In the
event counter parties do not fulfill their obligations, the
Company may be exposed to risk. The risk of default depends on
the credit worthiness of the counter party or issuer of the
instrument. The Company seeks to control credit risk by
following an established credit approval process, monitoring
credit limits, and requiring collateral where it deems
appropriate.
The Company purchases debt securities and may have significant
positions in its inventory subject to market and credit risk. In
order to control these risks, security positions are monitored
on at least a daily basis. Should the Company find it necessary
to sell such a security, it may not be able to realize the full
carrying value of the security due to the size of the position
sold. The Company attempts to reduce its exposure to changes in
municipal securities valuation with the use of hedges of highly
liquid municipal bond index futures contracts.
OPERATING
RISK
Operating risk is the potential for loss arising from
limitations in the Companys financial systems and
controls, deficiencies in legal documentation and the execution
of legal and fiduciary responsibilities, deficiencies in
technology, and the risk of loss attributable to operational
problems. These risks are less direct than credit and market
risk, but managing them is critical, particularly in a rapidly
changing environment with increasing transaction volumes. In
order to reduce or mitigate these risks, the Company has
established and maintains an internal control environment that
incorporates various control mechanisms at different levels
throughout the organization and within such departments as
Finance, Accounting, Operations, Legal, Compliance and Internal
Audit. These control mechanisms attempt to ensure that
operational policies and procedures are being followed and that
the Companys various businesses are operating within
established corporate policies and limits.
OTHER
RISKS
Other risks encountered by the Company include political,
regulatory and tax risks. These risks reflect the potential
impact that changes in local laws, regulatory requirements or
tax statutes have on the economics and viability of current or
future transactions. In an effort to mitigate these risks, the
Company seeks to review new and pending regulations and
legislation and their potential impact on its business.
In addition, the Company has incurred substantial costs in
connection with entering into agreements regarding the sale of
its Municipal Capital Markets Division to DEPFA BANK plc and the
recapitalization with MatlinPatterson Global Opportunities
Partners II. These transactions are subject to a variety of
closing conditions and the need to meet these conditions could
delay or prevent the consummation of either of these
transactions. It cannot be assumed that these conditions will be
met or that their terms, conditions and timing will not be
detrimental to the Company.
D-104
![(PROXY CARD 1)](y37370dfy3737010.gif)
ANNUAL MEETING OF SHAREHOLDERS OF FIRST ALBANY COMPANIES INC. September 21, 2007 Please date, sign
and mail your porxy card in the envelope provided as soon as possible Please detach along
perforated line and mail in the envelope provided. 20330303030330303000 6 090607 PLEASE SIGN, DATE
AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN
HERE x FOR AGAINST ABSTAIN 1. The Election of Directors: 2. To approve the Companys issuance and
sale of shares of common stock to MatlinPatterson FA Acquisition LLC in the Private Placement.
NOMINEES: FOR ALL NOMINEES O Peter J. McNierney (To expire in 2010) (To expire in 2010)
3. To amend the Companys Certificate of Incorporation to increase the O Alan P. Goldberg
authorized share capital of the Company from 50,000,000 shares of O Carl P. Carlucci, Ph.D.
(To expire in 2010) WITHHOLD AUTHORITY common stock to 100,000,000 shares of common stock with
the same FOR ALL NOMINEES par value of $0.01 per share. FOR ALL EXCEPT (See instructions below) 4.
To amend the Companys Certificate of Incorporation to increase the authorized share capital of
the Company from 500,000 shares of preferred stock to 1,500,000 shares of preferred stock with the
same par value of $1.00 per share. 5. To amend the Companys Certificate of Incorporation to limit
the liability of the directors of the Company to the extent permitted under Section 402(b) of the
New York Business Corporation Law. INSTRUCTION: To withhold authority to vote for any individual
nominee(s), mark FOR ALL EXCEPT 6. To approve the adoption of the First Albany Companies Inc.
2007 and fill in the circle next to each nominee you wish to withhold, as shown here: Incentive
Compensation Plan. 7. The ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants of the Company for the fiscal year ending December 31, 2007. 8. In the
event there are insufficient votes at the time of the annual meeting to adopt Proposals 2, 3, 4, 5
and 6, to adjourn or postpone the annual meeting in order to solicit additional proxies. 9. In
their discretion, the proxies are authorized to vote upon any other business that may properly come
before the meeting. To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that TO INCLUDE ANY COMMENTS,
USE THE COMMENTS BOX ON THE REVERSE SIDE OF changes to the registered name(s) on the account may
not be submitted via this method. THIS CARD. Signature of Stockholder Date: Signature of
Stockholder Date: Note: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as executor, administrator,
attorney, trustee or guardian, please give full title as such. If the signer is a corporation,
please sign full corporate name by duly authorized officer, giving full title as such. If signer
is a partnership, please sign in partnership name by authorized person. |
FIRST ALBANY COMPANIES INC. 677 BROADWAY ALBANY, NEW YORK 12207-2990 THIS PROXY IS SOLICITED ON
BEHALF OF THE BOARD OF DIRECTORS George C. McNamee and Peter J. McNierney, and each of them, as
proxies, with full power of substitution, are hereby authorized to represent and to vote, as
designated on the reverse side, all common stock of First Albany Companies Inc. held of record by
the undersigned on August 10, 2007 at the Annual Meeting of Shareholders to be held at 10:00 A.M.
(EDT) on Friday, September 21, 2007 at the offices of Sidley Austin LLP, 787 Seventh Avenue, 23rd
Floor, New York, NY 10019, or at any adjournment thereof. IN THEIR DISCRETION, THE ABOVE-NAMED
PROXIES ARE AUTHORIZED TO VOTE ON SUCH MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT THEREOF. THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO DIRECTION IS INDICATED, WILL
BE VOTED FOR EACH OF THE PROPOSALS. (Continued and to be signed on the reverse side) COMMENTS:
14475 |
![(PROXY CARD 3)](y37370dfy3737009.gif)
ANNUAL MEETING OF SHAREHOLDERS OF FIRST ALBANY COMPANIES INC. September 21, 2007 PROXY VOTING
INSTRUCTIONS MAIL Date, sign and mail your proxy card in the envelope provided as soon as
possible. OR TELEPHONE Call toll-free 1-800-PROXIES COMPANY NUMBER (1-800-776-9437) in the
United States or 1-718-921-8500 from foreign countries and follow the instructions. Have your proxy
card available when you call. ACCOUNT NUMBER OR INTERNET Access www.voteproxy.com and
follow the on-screen instructions. Have your proxy card available when you access the web page. -
OR IN PERSON You may vote your shares in person by attending the Annual Meeting. You may enter
your voting instructions at 1-800-PROXIES in the United States or 1-718-921-8500 from foreign
countries or www.voteproxy.com up until 11:59 PM Eastern Time the day before the cut-off or meeting
date. Please detach along perforated line and mail in the envelope provided IF you are not voting
via telephone or the Internet. 20330303030330303000 6 090607 PLEASE SIGN, DATE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x FOR AGAINST
ABSTAIN 1. The Election of Directors: 2. To approve the Companys issuance and sale of shares of
common stock to MatlinPatterson FA Acquisition LLC in the Private Placement. NOMINEES: FOR ALL
NOMINEES O Peter J. McNierney (To expire in 2010) Alan P. Goldberg (To expire in 2010) 3. To
amend the Companys Certificate of Incorporation to increase the O Carl P. Carlucci, Ph.D.
authorized share capital of the Company from 50,000,000 shares of O (To expire in 2010) WITHHOLD
AUTHORITY common stock to 100,000,000 shares of common stock with the same FOR ALL NOMINEES par
value of $0.01 per share. FOR ALL EXCEPT (See instructions below) 4. To amend the Companys
Certificate of Incorporation to increase the authorized share capital of the Company from 500,000
shares of preferred stock to 1,500,000 shares of preferred stock with the same par value of $1.00
per share. 5. To amend the Companys Certificate of Incorporation to limit the liability of the
directors of the Company to the extent permitted under Section 402(b) of the New York Business
Corporation Law. INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
FOR ALL EXCEPT 6. To approve the adoption of the First Albany Companies Inc. 2007 and fill in
the circle next to each nominee you wish to withhold, as shown here: Incentive Compensation Plan.
7. The ratification of the appointment of PricewaterhouseCoopers LLP as independent accountants of
the Company for the fiscal year ending December 31, 2007. 8. In the event there are insufficient
votes at the time of the annual meeting to adopt Proposals 2, 3, 4, 5 and 6, to adjourn or postpone
the annual meeting in order to solicit additional proxies. 9. In their discretion, the proxies are
authorized to vote upon any other business that may properly come before the meeting. To change the
address on your account, please check the box at right and indicate your new address in the address
space above. Please note that TO INCLUDE ANY COMMENTS, USE THE COMMENTS BOX ON THE REVERSE SIDE
OF changes to the registered name(s) on the account may not be submitted via this method. THIS
CARD. Signature of Stockholder Date: Signature of Stockholder Date: Note: Please sign exactly as
your name or names appear on this Proxy. When shares are held jointly, each holder should sign.
When signing as executor, administrator, attorney, trustee or guardian, please give full title as
such. If the signer is a corporation, please sign full corporate name by duly authorized officer,
giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. |