SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
First Albany Companies Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
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[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
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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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[FIRST ALBANY COMPANIES LOGO]
March 29, 2004
Dear Shareholder:
The 2004 Annual Meeting of Shareholders of First Albany Companies Inc. will be
held at the offices of the Company at 30 South Pearl Street, Albany, New York on
Tuesday, April 27, 2004, at 10:00 A.M. (EDT).
The enclosed material includes the Notice of Annual Meeting and Proxy Statement
that describes the business to be transacted at the meeting. We ask that you
give it your careful attention.
As in the past, we will be reporting on your Company's activities and you will
have an opportunity to ask questions about its operations.
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. Accordingly,
the return of the enclosed Proxy as soon as possible will be appreciated and
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. Over 92% of the outstanding shares
were represented at last year's Annual Meeting. If you do attend the Annual
Meeting, you may, of course, withdraw your Proxy should you wish to vote in
person.
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,
/s/ George C. McNamee
------------------------
George C. McNamee
Chairman of the Board
[FIRST ALBANY COMPANIES LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
APRIL 27, 2004
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of First
Albany Companies Inc. (the "Company") will be held at the offices of the
Company, 30 South Pearl Street, Albany, New York, on Tuesday, April 27, 2004 at
10:00 a.m. (EDT), for the following purposes:
(1) To elect four directors whose terms will expire at the 2007
Annual Meeting of Shareholders and one director whose term
will expire at the 2006 Annual Meeting of Shareholders;
(2) To ratify the appointment of PricewaterhouseCoopers LLP as
independent auditors of the Company for the fiscal year ending
December 31, 2004;
(3) To consider and act upon a proposal to approve the adoption of
the Third Amendment to the First Albany Companies Inc. 1999
Long-Term Incentive Plan to increase the number of shares
available for issuance; and
(4) To transact such other business as may properly come before
the meeting or any adjournment thereof.
Holders of common stock of record as of the close of business on March
10, 2004, are entitled to receive notice of and vote at the Annual Meeting of
Shareholders. A list of such shareholders may be examined at the offices of the
Company during regular business hours for ten full days prior to the Annual
Meeting as well as at the Annual Meeting.
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 revoke their proxies and vote in person.
By Order of the Board of Directors
Albany, New York
March 29, 2004
/S/ Stephen P. Wink
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Stephen P. Wink
Secretary
[FIRST ALBANY COMPANIES LOGO]
30 SOUTH PEARL STREET
ALBANY, NEW YORK 12207
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 27, 2004
This Proxy Statement is being furnished to the Shareholders of First
Albany Companies Inc., a New York corporation (the "Company"), in connection
with the solicitation by the Board of Directors of the Company (the "Board") of
proxies for use at the Annual Meeting of Shareholders of the Company to be held
at the offices of the Company, 30 South Pearl Street, Albany, New York, on
Tuesday, April 27, 2004 at 10:00 A.M. (EDT), and any postponements or
adjournments thereof (the "Meeting"). The mailing address of the principal
executive office of the Company is 30 South Pearl Street, Albany, New York 12207
and its telephone number is (518) 447-8500.
At the Meeting, the Shareholders of the Company will be asked (i) to
elect four directors of the Company whose terms will expire at the 2007 Annual
Meeting of Shareholders and one director whose term will expire at the 2006
Annual Meeting of Shareholders, (ii) to ratify the appointment of
PricewaterhouseCoopers LLP as independent auditors of the Company for the fiscal
year ending December 31, 2004; and (iii) to consider and act upon a proposal to
approve the adoption of the Third Amendment to the First Albany Companies Inc.
1999 Long-Term Incentive Plan.
PROXY SOLICITATION
This Proxy Statement and the enclosed form of proxy are expected to be
mailed on or about March 29, 2004. 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. 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 Company's 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.
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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 Meeting. The execution of a proxy will not affect a shareholder's
right to attend the Meeting and vote in person, but attendance at the 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.
MULTIPLE SHAREHOLDERS SHARING THE SAME ADDRESS
In accordance with a notice sent to eligible shareholders who share a
single address, we are sending only one annual report and proxy statement to
that address unless we received instructions to the contrary from any
shareholder at that address. This practice, known as "householding," is designed
to reduce the Company's printing and postage costs. However, if a shareholder of
record residing at such address wishes to receive a separate annual report or
proxy statement in the future, he or she may contact our transfer agent,
American Stock Transfer, at (212) 936-5100 or write to American Stock Transfer,
59 Maiden Lane, New York, New York 10038, Attention: Shareholder Services
Department. If you are an eligible shareholder of record receiving multiple
copies of our annual report and proxy statement, you can request householding by
contacting us in the same manner. If you own your shares through a bank, broker
or other nominee, you can request householding by contacting the nominee.
VOTING, RECORD DATE AND QUORUM
Proxies will be voted as specified or, if no direction is indicated on
a proxy, will be voted (i) "FOR" the election of the five persons named under
the caption "Election of Directors"; (ii) "FOR" the ratification of the
appointment of PricewaterhouseCoopers LLP as independent auditors of the Company
for the fiscal year ending December 31, 2004; and (iii) "FOR" the approval of
the adoption of the Third Amendment to the First Albany Companies Inc. 1999
Long-Term Incentive Plan.
The persons named in the proxy also may vote in favor of a proposal to
adjourn the Meeting to a subsequent date or dates without further notice in
order to solicit and obtain sufficient votes to approve the matters being
considered at the Meeting. If a proxy is returned which specifies a vote against
a proposal, such discretionary authority will not be used to adjourn the Meeting
in order to solicit additional votes in favor of such proposal. As to any other
matter or business which may be brought before the 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,
but the Board does not know of any such other matter or business.
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The close of business on March 10, 2004 has been fixed as the record
date for the determination of Shareholders entitled to vote at the Meeting.
12,405,205 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. 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
Meeting is necessary to constitute a quorum at the Meeting. Abstentions, broker
non-votes and votes to "withhold authority" are counted in determining whether a
quorum has been reached on a particular matter.
The election of directors requires a plurality of the votes cast for
the election of directors; accordingly, the directorships to be filled at the
Meeting will be filled by the nominees receiving the highest number of votes. In
the election of directors, votes may be cast in favor of or withheld with
respect to any or all nominees; votes that are withheld will be excluded
entirely from the vote and will have no effect on the outcome of the vote.
With respect to the ratification of the appointment of the Company's
independent auditors, the affirmative vote of the holders of a majority of the
votes cast for or against this matter by shareholders entitled to vote at the
Meeting is required. An abstention from voting on this matter will be treated as
"present" for quorum purposes. However, since an abstention is not treated as a
"vote" for or against this matter, it will have no effect on the outcome of the
vote.
The affirmative vote of the holders of a majority of the votes cast at
the Meeting is required for the approval of the Third Amendment to the First
Albany Companies Inc. 1999 Long-Term Incentive Plan. An abstention from voting
on this matter will be treated as "present" for quorum purposes. However,
because an abstention is not voted, an abstention will have the effect of a
negative vote.
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 some of the matters to be acted upon. 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. Shares represented by such "broker non-votes"
will, however, be counted in determining whether there is a quorum.
THE BOARD RECOMMENDS (i) THE ELECTION OF THE FIVE PERSONS NAMED AS
NOMINEES UNDER "ELECTION OF DIRECTORS", (ii) THE RATIFICATION OF THE APPOINTMENT
OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE
FISCAL YEAR ENDING DECEMBER 31, 2004; AND (iii) THE APPROVAL OF THE ADOPTION OF
THE THIRD AMENDMENT TO THE FIRST ALBANY COMPANIES INC. 1999 LONG-TERM INCENTIVE
PLAN.
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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 March 10, 2004, by (i) persons
owning more than 5% of the common stock, (ii) each director and each nominee for
election as a director of the Company and the executive officers included in the
Summary Compensation Table and (iii) all directors and executive officers 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
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Name Number Percent
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George C. McNamee(2,3,7) 1,792,912 14.17%
Alan P. Goldberg(2,4,7) 1,450,512 11.42%
Robert F. Campbell(2,7) 123,745 1.00%
Arthur T. Murphy(2,5,7) 373,806 2.99%
Steven R. Jenkins(2,7) 141,990 1.14%
Hugh A. Johnson, Jr. 2 409,338 3.25%
Kenneth A. Mabbs(2) 165,797 1.34%
Stephen P. Wink(2,7) 125,160 1.00%
Carl P. Carlucci, Ph.D. 2,801 *
Walter M. Fiederowicz(2,6) 15,428 *
Nicholas A. Gravante, Jr.(2) 25,334 *
Dale Kutnick(2) 16,134 *
Shannon P. O'Brien(2) 334 *
Arthur J. Roth 10,000 *
All directors and executive officers as a group 4,653,291 34.47%
(14 persons)(2)
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(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
March 10, 2004, through the exercise of stock options as follows: Mr.
G. McNamee: 245,112; Mr. Goldberg: 283,099; Mr. Campbell: 8,334; Mr.
Murphy: 107,246; Mr. Jenkins: 90,307; Mr. Johnson: 197,825; Mr. Wink:
105,464; Mr. Fiederowicz: 334; Mr. Gravante: 334; Mr. Kutnick: 334; Ms.
O'Brien: 334; and all directors and executive officers as a group:
1,038,723. Also includes the number of phantom stock units held under
the Deferred Compensation Plan for Key Employees as follows: Mr. G.
McNamee: 5,892; Mr. Goldberg: 16,371; Mr. Campbell: 11,737; Mr. Murphy:
3,697; Mr. Jenkins: 11,990; Mr. Johnson: 2,423; Mr. Mabbs: 1,859; Mr.
Wink: 1,953; and all directors and executive officers as a group:
55,922.
(3.) Includes 13,399 shares that Mr. McNamee owns jointly with his spouse.
Also includes 22,254 shares owned by Mr. McNamee as custodian for his
minor children.
(4.) Includes 109,539 shares held by the Goldberg Charitable Trust. Mr.
Goldberg is the co-trustee of such trust and disclaims beneficial
ownership of such shares.
(5) Includes 7,000 shares held by the Arthur T. and Barbara S. Murphy
Foundation Inc. Mr. Murphy is the co-trustee of such trust and
disclaims beneficial ownership of such shares.
(6.) Includes 10,268 shares owned by Mr. Fiederowicz's spouse; Mr.
Fiederowicz disclaims beneficial ownership of such shares.
(7.) Includes restricted shares of Common Stock over which the persons named
have no dispositive power: Mr. G. McNamee: 7,854; Mr. Goldberg: 13,090;
Mr. Campbell: 19,471; Mr. Murphy: 40,380; Mr. Jenkins: 32,854; Mr.
Wink: 2,946; and all directors and executive officers as a group:
116,595.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Bylaws of the Company currently provide that the Board shall
consist of eleven directors elected in three classes. Four directors will be
elected at the Meeting to serve for a three-year term expiring at the Annual
Meeting of Shareholders in 2007, and one director will be elected at the Meeting
to serve for a two-year term expiring at the Annual Meeting of Shareholders in
2006. The Board has nominated Alan P. Goldberg, Robert F. Campbell, Carl P.
Carlucci and Arthur J. Roth as directors whose terms will expire in 2007, and
Arthur T. Murphy as a director whose term will expire in 2006. 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 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 are presently directors of the Company.
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 AND EXECUTIVE OFFICERS OF THE COMPANY
The directors nominated for election whose terms will expire in 2007 are as
follows:
ALAN P. GOLDBERG, age 58, joined First Albany in 1980. Mr. Goldberg is President
and Chief Executive Officer of the Company. He joined First Albany in 1980 and
has served as the firm's President since 1989 and Co-Chief Executive Officer
from 1993 until 2003. In 2003, Mr. Goldberg was named sole Chief Executive
Officer of the Company. Mr. Goldberg is a Director of SatCon Technology
Corporation (a maker of power control systems). 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.
ROBERT F. CAMPBELL, age 59, has been Executive Managing Director and Director of
First Albany Capital's Taxable Fixed Income Division since prior to 1999. He
joined First Albany in 1987 and established the Taxable Fixed Income division.
Prior to joining First Albany, he was with EF Hutton for 15 years in senior
management roles in the taxable fixed-income institutional sales and trading
groups at that firm. Mr. Campbell is a past Board Member of the Bond Market
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Association, Co-Chair of their High-Yield Committee and a member of the Regional
Dealer Committee. Mr. Campbell also serves as an Associate Trustee for Siena
College and a board member of Saint Anne's Institute Foundation. Mr. Campbell
has been a director of the Company since 2003.
CARL P. CARLUCCI, Ph.D., age 55, 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 1997 to 1999 Dr. Carlucci was Executive Vice President of the
University at Albany, State University of New York. Dr. Carlucci's 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 Albany's Rockefeller College. Dr.
Carlucci is Chair of the Executive Compensation Committee and has been a
director of the Company since 2003.
ARTHUR J. ROTH, age 64, was New York State Commissioner of Taxation and Finance
from 1999 through August 2003. Prior to his appointment as Commissioner, Mr.
Roth was Deputy Commissioner for Operations, New York State Department of
Taxation and Finance from 1996 until 1999. Mr. Roth is a Certified Public
Accountant and was Senior Consulting Director for Coopers & Lybrand, LLP and a
Director of their Financial Advisory Practice for Upstate New York in the early
1990s. Mr. Roth has been a member of and led a great number of civic and
business organizations, including The University at Albany Foundation and the
New York State Society of Certified Public Accountants. Mr. Roth is a member of
the Audit Committee and has been a director of the Company since 2003.
The director nominated for election whose term will expire in 2006 is as
follows:
ARTHUR T. MURPHY, age 49, has been Executive Managing Director and Director of
First Albany Capital's Municipal Capital Markets division since prior to 1999.
He joined First Albany in 1980 as a Senior Vice President in charge of the
Municipal Capital Markets Group. He is currently the Chairman of First Albany
Capital's Risk Management Committee. He is a member of the Executive Committee
of the Bond Market Association. Mr. Murphy served as a governor of the Municipal
Forum of New York from 1996-2001 and President from 1999-2000. He currently
serves as an advisor to the Municipal Forum Youth Education Fund, as a Trustee
and Treasurer of the Public Health Research Institute in Newark, New Jersey and
as a Trustee and Treasurer of the Greyston Foundation in Yonkers, New York. Mr.
Murphy has been a director of the Company since 2003.
THE BOARD RECOMMENDS A VOTE FOR EACH OF THE FIVE DIRECTOR NOMINEES.
8
The following directors' terms shall expire at the Annual Meeting of
Shareholders in 2005:
GEORGE C. McNAMEE, age 57, joined First Albany in 1969. Mr. McNamee is the
executive Chairman of the Company and also serves as a Managing Partner of FA
Technology Ventures. Mr. McNamee has been Chairman of the Company since 1985 and
also served as Co-CEO from 1993 until July 2003. He is also Chairman of Plug
Power Inc. (a maker of fuel cells) and a director of META Group, Inc. (an
information technology research advisor). He also serves on the Yale Development
Board. Mr. McNamee has been a director of the Company since its incorporation in
1985.
WALTER M. FIEDEROWICZ, age 57, has been a private investor and consultant since
August 1997. Since September 2000, he has served as Managing Director of Painter
Hill Partners, an investment company. From April 1997 until August 1997, he
served as the President and Chief Executive Officer of WorldCorp., Inc., a
holding company owning shares of common stock of World Airways, Inc. (a provider
of long-range passenger and cargo air transportation services to major airlines)
and of InteliData Technologies Corporation (a provider of caller identification
based telecommunications devices, smart telephones and on-line electronic
information services). Mr. Fiederowicz served as chairman of Colonial Data
Technologies Corp. (a distributor of telecommunications equipment which
subsequently merged into InteliData Technologies Corporation) from August 1994
to March 1996. From January 1991 until July 1994, he held various positions,
including Executive Vice President and Chairman and served as director of
Conning & Company (the parent company of an investment firm). Mr. Fiederowicz
also serves as a director of Photronics, Inc. (a photomask manufacturer) and
Hematech, LLC (a biotechnology company). Since 1998, Mr. Fiederowicz served as
Chairman of CDT Corporation and Meacock Capital, PLC. Since August 2003, Mr.
Fiederowicz has served as Chairman of the Board of Omega Underwriting Holdings,
Ltd, a Lloyd's-based insurer. Mr. Fiederowicz is Lead Director, Chair of the
Audit Committee, a member of the Executive Compensation Committee and has been a
director of the Company since 1996.
SHANNON P. O'BRIEN, age 44, was the State Treasurer and Receiver General for the
Commonwealth of Massachusetts from 1999 to January 2003. She was Vice President
for External Affairs for Community Care Systems, a behavioral healthcare network
from 1995 to 1997. Ms. O'Brien taught at Boston University School of
Communications in 1997, after which she began her work as a candidate for State
Treasurer. The 2002 Democratic Nominee for Governor of Massachusetts, Ms.
O'Brien also served previously for eight years in the Massachusetts Legislature.
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. O'Brien 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.
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The following directors' terms shall expire at the Annual Meeting of
Shareholders in 2006:
HUGH A. JOHNSON, JR., age 63, joined First Albany in 1977. He is Senior Vice
President of First Albany Companies Inc. and Chief Investment Officer of First
Albany Capital Inc. He has also been Chairman of FA Asset Management
Corporation, (formerly known as First Albany Asset Management) a subsidiary of
the Company, since 1991. He has served on the Board of Directors of First Albany
since 1985. Mr. Johnson is an economic advisor to the Chairman of the New York
State Assembly Committee on Ways and Means and is a Director of the New York
State Business Development Corporation, Security Mutual Life and Nye Parnell &
Emerson. Mr. Johnson is a visiting Professor of Finance at Rensselaer
Polytechnic Institute. In addition, he serves on several other state and
community boards. Mr. Johnson has served as a director of the Company since
1990.
NICHOLAS A. GRAVANTE, JR., age 43, 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 Brooklyn Public Library, the
Community Service Society of New York and a member of the Board of Governors at
the Lords Valley Country Club in Lords Valley, Pennsylvania. Mr. Gravante is a
member of the Committee on Directors and Corporate Governance and has been a
director of the Company since 2003.
DALE KUTNICK, age 53, is 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 and has been a director of the Company since 2003.
The following executive officers do not serve as directors and are not nominated
for election as directors:
STEVEN R. JENKINS, age 39, joined First Albany Capital in 1999 as Chief
Financial Officer and Senior Vice President. In January 2000, he was named Chief
Financial Officer of the Company. Since mid-2002, Mr. Jenkins has been Executive
Managing Director, Chief Operating Officer and Chief Financial Officer of First
Albany Capital Inc. Before joining First Albany, Mr. Jenkins served as Chief
Financial Officer and Senior Vice President of Precision Imaging Solutions Inc.
(a regional imaging company). Prior to that, he held several financial positions
with Dain Rauscher, an investment bank, most recently as Managing Director and
Director of Finance of Dain Rauscher Wessels, a division of Dain Rauscher Inc.
Mr. Jenkins has been a certified public accountant licensed in the State of
Texas since 1991.
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KENNETH A. MABBS, age 51, joined First Albany in 1991. He is currently Executive
Managing Director of First Albany Capital and a Managing Partner and founding
member of FA Technology Ventures. Mr. Mabbs served as Director of Corporate
Investment Banking at First Albany Capital until January 2000. He has also been
involved in most of the merchant banking activities at the firm over the past
five years. Mr. Mabbs has over 23 years of diversified corporate finance and
investment management experience. Prior to joining First Albany, he was a senior
investment banker at Bear, Stearns & Co. in New York and Boston, focusing on
financing transactions and strategic advisory work for emerging growth and
technology companies.
STEPHEN P. WINK, age 45, joined the Company in 1996. He has been Executive
Managing Director, General Counsel and Secretary of the Company, and General
Counsel and Secretary of First Albany Capital Inc. since prior to 1999. Mr. Wink
is a member of the Bond Market Association's Municipal and Corporate Bond Legal
Advisory Committees and a member of the Securities Industry Association's
Federal Regulation Committee. Mr. Wink came to First Albany from Cleary,
Gottlieb, Steen & Hamilton in New York City, where he practiced in the fields of
corporate and securities law.
GOVERNANCE OF THE COMPANY
The Board of Directors held 7 meetings during the Company's fiscal year
ended December 31, 2003. The committees of the Board each held the number of
meetings noted below in "Committees of the Board". During 2003, each Director
attended 100% of the total number of meetings of the Board (while he or she was
a member) and at least 90% of the total number of meetings of committees of the
Board on which he or she served. The Board has determined that Messrs. Carlucci,
Fiederowicz, Gravante, Kutnick and Roth and Ms. O'Brien are "independent
directors" as defined in the NASDAQ Stock Market listing standards.
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 Charters of each of the Committees listed below, are available on
the Company's 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 7(h) of Schedule 14A under 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 Company's
Corporate Secretary at the following address: First Albany Companies Inc., 30
South Pearl Street, Albany, New York 12207, 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.
11
THE AUDIT COMMITTEE. The Audit Committee, responsible for reviewing the
Company's financial statements, met 10 times during the fiscal year. The Audit
Committee operates pursuant to a written charter that the Board reviews each
year to assess its adequacy. The current Audit Committee Charter is attached as
Exhibit A to this Proxy Statement. As fully set forth in the attached charter,
the Audit Committee reviews the Company's expenditures, reviews the Company's
internal accounting controls and financial statements, reviews with the
Company's independent auditors the scope of their audit, their report and their
recommendations and is directly responsible for the selection of the Company's
independent auditors. This Committee is comprised of Mr. Fiederowicz, who serves
as the Chairman, Ms. O'Brien, who has served on the Committee since her election
in March 2003, and Mr. Roth, who has served on the Committee since his election
in October 2003. 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 Securities Exchange Act of 1934 (the
"Exchange Act") and the Company's Corporate Governance Guidelines. Each of Mr.
Fiederowicz and Mr. Roth 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 employee's supervisor, (ii) the General Counsel
of the Company, (iii) an attorney in the Legal Department of First Albany, (iv)
the Director of Human Resources of First Albany; (v) the Company's toll free
anonymous voice mailbox at 1-866-480-6132, or (vi) the Company's anonymous
drop-box, which may be accessed through the Company's website
(www.firstalbany.com). The full text of the Complaint Procedures for Accounting
and Auditing Matters is available on our website.
The Audit Committee's procedures for the pre-approval of the audit and
permitted non-audit services are described in "Proposal No. 2 Ratification of
Selection of Independent Auditors -- Audit Committee Pre-Approval Policy."
THE EXECUTIVE COMPENSATION COMMITTEE. The Executive Compensation
Committee is responsible for reviewing and approving the compensation of
executive officers of the Company. The Compensation Committee also administers
the Company's 1999 Long-Term Incentive Plan, 2001 Long-Term Incentive Plan and
the 2003 Senior Management Bonus Plan. The Executive Compensation Committee met
5 times during fiscal year 2003 and is comprised of Messrs. Carlucci and
Fiederowicz. Mr. Carlucci is the Chair of the Committee. Each member of the
Executive Compensation Committee is an "independent director" as defined in the
NASDAQ Stock Market listing standards.
THE COMMITTEE ON DIRECTORS AND CORPORATE GOVERNANCE. The Board
established the Committee on Directors and Corporate Governance in fiscal year
2002. The Committee held 3 meetings during 2003. Among its specific duties, the
Committee determines criteria for service as director, reviews candidates and
considers appropriate governance practices. The Committee considers nominees for
director proposed by shareholders. To recommend a prospective nominee for the
Committee's consideration, shareholders should submit the candidate's name and
qualifications to the Company's Corporate Secretary in writing to the following
address: First Albany
12
Companies Inc., 30 South Pearl Street, Albany, New York 12207, Attn: Corporate
Secretary. The Committee on Directors and Corporate Governance is comprised of
Ms. O'Brien, who serves as Chairperson 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.
DIRECTOR COMPENSATION
During 2003, the Company paid directors who are not executive 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, Mr.
Fiederowicz. 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 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 Directors' Stock Plan, the Non-Employee Directors each
received a grant of an option covering 1,000 shares of Common Stock on April 29,
2003 or upon their election as a director of the Company. 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. Pursuant to this annual
grant provision, all of the Company's Non-Employee Directors following the
Annual Meeting will receive stock options to purchase 2,500 shares of Common
Stock.
All options that may be granted under the Directors' 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. In addition to any
annual grant of options or restricted shares, under the Directors' 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
In the ordinary course of its business, First Albany Capital Inc.
extends credit to employees, including directors and executive officers, under
Regulation T, which regulates credit in cash and margin accounts. Such
extensions of credit are performing and are made on the same terms as for
customers.
13
As of December 31, 2003, the Company had a commitment to invest as a
limited partner up to $14.8 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 $11 million in parallel with the Fund; this parallel commitment may
be satisfied by investments from the Company's employee funded investment
vehicles established by the Company to allow select employees to invest along
with the Fund. 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 17.251% membership interest. As a result of this
interest in the general partner, he would be entitled to receive a corresponding
percentage of the 20% carried interest that may become payable by the Fund to
its general partner if the Fund's 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.
First Albany Capital Inc. has an exclusive arrangement with META Group
Inc. ("META"), an information technology research advisor. Under the
arrangement, First Albany Capital Inc. had access to META's research and
analysts and uses this information in support of its own research products. Mr.
Kutnick is the Chairman of the Board of Directors of META and owns approximately
13.38% of META common stock. Mr. McNamee is also a director of META. In 2003,
First Albany Capital Inc. paid META $1,722,338 (including $31,980 in expense
reimbursements) pursuant to this arrangement. First Albany Capital Inc. has
informed META that, in accordance with the terms of the contract, it is
terminating this arrangement as of August 20, 2004, and it may consider META as
a provider of such services in the future.
Mr. Gravante is a partner in the law firm of Boies Schiller & Flexner
LLP ("Boies"). The Company or its subsidiaries paid a total of $28,872 in 2003
to Boies for legal services rendered.
In February 2004, the Company entered into agreements to raise $10
million through a private placement of its common stock. The private placement
was purchased by accredited investor employees of the Company or its
subsidiaries. Adams Harkness & Hill, Inc. acted as financial advisor to the
Company for the private placement. Messrs. Jenkins and Mabbs participated in the
private placement, each committing to purchase 17,921 shares at $11.16 per
share. The transaction is expected to close on or about March 29, 2004.
14
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding
compensation paid or earned by (i) the Chief Executive Officer(1) and (ii) the
Company's four most highly compensated executive officers other than the Chief
Executive Officer who were serving as executive officers as of December 31, 2003
(collectively referred to as the "Named Executive Officers").
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------ -----------------------
RESTRICTED SECURITIES
NAME & PRINCIPAL STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS AWARDS(2) OPTIONS(3) COMPENSATION(4)
----------------------- ---- -------- ---------- ---------- ---------- ---------------
GEORGE C. MCNAMEE(1) 2003 $300,000 $ 600,000 $ 0 0 $ 6,000
CHAIRMAN 2002 300,000 300,000 0 0 0
2001 300,000 200,000 0 0 0
---- -------- ---------- ---------- ---------- -------------
ALAN P. GOLDBERG(1) 2003 $400,000 $1,000,000 $ 0 50,000 $ 6,000
PRESIDENT & CHIEF 2002 308,333 500,000 0 50,000 6,000
EXECUTIVE OFFICER 2001 300,000 300,000 0 60,775 6,000
---- -------- ---------- ---------- ---------- -------------
HUGH A. JOHNSON, JR. 2003 $240,000 $ 510,000 $ 0 25,000 $ 6,000
SENIOR VICE PRESIDENT 2002 240,000 300,000 0 25,000 6,000
2001 240,000 300,000 0 36,464 0
---- -------- ---------- ---------- ---------- -------------
ROBERT F. CAMPBELL 2003 $165,000 $1,487,566 $ 0 25,000 $ 6,000
EXECUTIVE MANAGING 2002 165,000 2,500,000 0 50,000 6,000
DIRECTOR 2001 165,000 2,123,912 0 0 6,000
---- -------- ---------- ---------- ---------- -------------
ARTHUR T. MURPHY 2003 $200,000 $1,489,000 $ 200,000 25,000 $ 6,000
EXECUTIVE MANAGING 2002 200,000 1,776,000 0 30,000 6,000
DIRECTOR 2001 200,000 1,450,000 0 30,388 6,000
---- -------- ---------- ---------- ---------- -------------
STEVEN R. JENKINS 2003 $275,000 $ 600,000 $ 0 25,000 $ 0
CHIEF FINANCIAL OFFICER 2002 203,125 450,000 179,250 25,000 6,000
2001 187,500 175,000 0 24,309 0
---- -------- ---------- ---------- ---------- -------------
----------------------
(1.) Mr. McNamee served as Co-Chief Executive Officer of the Company with
Mr. Goldberg until July 2003, at which time Mr. Goldberg became the
sole Chief Executive Officer.
(2.) The restricted stock awards reflected in this column are valued at the
market price of Common Stock as of the date of grant and vest in equal
increments of approximately 33% over a three year period. As of
December 31, 2003, Mr. Murphy holds 40,350 shares of restricted stock
with a value of $565,723.80. As of December 31, 2003, Mr. Jenkins holds
32,854 shares of restricted stock with a value of $460,284.54. In prior
years the Company issued two 5% stock dividends. As a result, the
number of securities underlying each option granted and the exercise
price have been adjusted to reflect such dividends where appropriate.
4. Represents contributions by the Company to the First Albany Companies
Inc. Deferred Compensation Plan for Key Employees, a nonqualified plan
in which certain key employees of the Company are eligible to
participate. Under this plan, a participating executive officer will
become vested in any unvested Company contributions in the event that
such executive officer's employment is terminated in connection with a
change of control of the Company. The committee administering the
Deferred Compensation Plan may also provide in a participant's annual
deferral agreement for acceleration of vesting solely upon a change of
control of the Company.
15
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants during 2003
to the Named Executive Officers.
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(2)
OPTIONS EMPLOYEES BASE PRICE --------------------------
GRANTED IN FISCAL EXPIRATION
NAME (#) (1) YEAR ($/SH)(1) DATE 5% 10%
-------------------- ---------- ---------- ----------- ---------- ----------- ----------
George C. McNamee -- -- -- -- -- --
Alan P. Goldberg 50,000 12.29% $13.35 12/22/13 $419,787 $1,063,823
Hugh A. Johnson, Jr. 25,000 6.14% 8.00 03/14/13 125,779 318,748
Robert F. Campbell 25,000 6.14% 8.00 03/14/13 125,779 318,748
Arthur T. Murphy 25,000 6.14% 8.00 03/14/13 125,779 318,748
Steven R. Jenkins 25,000 6.14% 8.00 03/14/13 125,779 318,748
----------------------
1. These options were granted on March 14, 2003, with the exception of Mr.
Goldberg's options which were granted on December 22, 2003, at fair
market value on the date of grant and will vest in three equal annual
installments of approximately 33% commencing on the first anniversary
of the date of grant through the third anniversary of the date of
grant. However, each of the options will immediately become exercisable
for all of the option shares in the event of a change of control of the
Company.
2. Represents gain that would be realized assuming the options were held
for the entire option term and the stock price increased at annual
compounded rates of 5% and 10%. These amounts represent assumed rates
of appreciation only. Actual gains, if any, on stock option exercises
and common stock holdings will be dependent on overall market
conditions and on the future performance of the Company and its common
stock. There can be no assurance that the amounts reflected in this
table will be achieved.
16
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table provides information concerning the exercise of
stock options during 2003 by each of the Named Executive Officers and the
year-end value of their unexercised options.
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS AT FISCAL OPTIONS AT
ON REALIZED YEAR-END(#) FISCAL YEAR-END($) (2)
NAME EXERCISE(#) ($) (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
George C. McNamee -- -- 245,112 -- $ 1,611,851 --
Alan P. Goldberg 89,792 $38,718 283,099 100,001 1,174,608 $ 375,008
Hugh A. Johnson, Jr. -- -- 189,491 50,000 906,712 321,250
Robert F. Campbell -- -- -- 75,000 -- 492,250
Arthur T. Murphy -- -- 81,261 80,249 366,982 433,171
Steven R. Jenkins -- -- 69,196 68,855 229,662 383,413
----------------------
1. Represents the difference between the fair market value of the shares
at date of exercise and the exercise price multiplied by the number of
options exercised.
2. Represents the difference between the fair market value of the share as
of December 31, 2003 and the exercise price multiplied by the number of
unexercised options.
17
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2003 with
respect to shares of common stock of the Company that may be issued under the
Company's existing equity compensation plans.
C
NUMBER OF SECURITIES
REMAINING AVAILABLE
A FOR FUTURE ISSUANCE
NUMBER OF SECURITIES B UNDER EQUITY
TO BE ISSUED UPON WEIGHTED AVERAGE COMPENSATION PLANS
EXERCISE OF EXERCISE PRICE OF (EXCLUDING SECURITIES
PLAN CATEGORY OUTSTANDING OPTIONS OUTSTANDING OPTIONS REFLECTED IN COLUMN A)(3)
-------------------- ------------------- -------------------------
Equity Compensation Plans 2,067,240 $8.59 861,631
Approved by Shareholders(1)
Equity Compensation 1,323,522 $6.19 45,504
Plans Not Approved
by Shareholders (2)
--------- ----- -------
Total 3,390,762 $7.65 907,135
--------- ----- -------
1. Consists of the 1989 Stock Incentive Plan, the 1999 Long-Term
Incentive Plan and the 2003 Directors' Stock Plan.
2. Consists of the 2001 Long-Term Incentive Plan, which is
described below. No options or other benefits under this Plan
may be granted to directors or executive officers of the
Company.
3. The table does not reflect the proposed amendment to the 1999
Long-Term Incentive Plan.
2001 LONG-TERM INCENTIVE PLAN
On October 18, 2001, the Board of Directors adopted the 2001 Long-Term
Incentive Plan (the "2001 Plan"). The 2001 Plan provides for the granting of
non-qualified stock options, performance units, restricted shares and stock
appreciation rights to the employees of the Company and its subsidiaries. Upon
adoption of the 2001 Plan, the Company reserved a total of 800,000 common shares
for issuance under the 2001 Plan. In November 2002, an additional 800,000 common
shares were reserved for issuance under the 2001 Plan. The committee of the
Board administering the 2001 Plan has the authority to establish the exercise
price and term for options grants. The options that have been issued generally
vest and become exercisable in four equal installments beginning on the first
anniversary of the grant date. The options vest on an accelerated basis in the
event of a change in control of the Company. The 2001 Plan is intended to
function as a broad-based incentive plan, and no awards under the 2001 Plan have
been made to directors or executive officers of the Company.
As of March 10, 2004, options covering 1,312,407 shares of the
Company's common stock were outstanding under the 2001 Plan and options covering
180,898 shares had been
18
exercised during the fiscal year. Also as of March 10, 2004, 637,562 Restricted
Shares had been granted under the 2001 Plan. No performance units or stock
appreciation rights have been granted. 178 shares remained available for
granting of future awards.
The 2001 Plan is included as Exhibit 10.10 in the Company's Annual
Report on Form 10-K for the period ended December 31, 2003, filed with the
Securities and Exchange Commission.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on the Company's 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 Securities Exchange Act of 1934, the Company believes that
all such reports were filed on a timely basis during fiscal year 2003 with the
exception of: (i) Mr. Goldberg, who did not timely file one Form 4 to report one
option grant, but subsequently filed such Form 4, (ii) Mr. Kutnick, who did not
include a holding on one Form 3, but subsequently reported such holding on a
Form 5 and (iii) Mr. Murphy who did not timely report one gift transaction on a
Form 5, but subsequently reported such transaction on a Form 5.
EXECUTIVE COMPENSATION COMMITTEE REPORT
OVERVIEW
The Executive Compensation Committee establishes the compensation
policies applicable to the executive officers of the Company. The Compensation
Committee also administers the Company's Long-Term Incentive Plans and the
Senior Management Bonus Plan.
COMPENSATION POLICIES
Compensation for executive officers of the Company has been strongly
influenced by the principle that the compensation of executive officers should
be structured to directly link the executives' financial reward to the
performance of the business unit they lead or, as the case may be, the
performance of the Company as a whole. Thus, for example, incentive compensation
of the Chief Executive Officer would both share in the success of the Company as
a whole and be adversely affected by poor Company performances, thereby aligning
his interests with the interests of the Company's shareholders.
Salaries of executive officers are intended to be relatively moderate,
and are set at levels, which the Executive Compensation Committee believes are
generally competitive with salaries of executives in similar positions at
comparable financial services companies. The Committee reviews data on
comparable firms in the industry and recommendations from compensation
consultants in making these determinations. Substantial emphasis is placed on
incentive compensation directly related to short and long-term corporate
performance through annual cash bonuses and stock option or restricted stock
grants.
19
ANNUAL BONUS
As is common in the financial services industry, a significant portion
of total compensation of the Company's executive officers is paid in the form of
annual bonuses. For example, in 2003 executive officers received annual bonuses
ranging from approximately 31% to 90% of their total compensation. This practice
is intended to maximize the portion of an individual's compensation that is
subject to fluctuation each year based upon corporate and individual
performance, as discussed below. The compensation program is structured to
recognize each executive's level of responsibility and to reward exceptional
individual and corporate performance.
Annual bonuses for the executive officers of the Company are
established under the Senior Management Bonus Plan. The specific bonus an
executive receives is dependent on his level of responsibility, individual
performance and the performance of his business unit and/or the Company. Levels
of responsibility are evaluated annually by the Executive Compensation Committee
without regard to any specific formula. Assessments of individual performance
and contribution to the firm are also made annually by the Executive
Compensation Committee after receiving the recommendations of the CEO, Mr.
Goldberg. Such assessments are based on a number of factors, including
individual and corporate performance, initiative, business judgment, and
management skills. The Committee also pays careful attention to competitive
compensation practices, including reviewing industry compensation surveys
provided by outside vendors. The Committee established in the first quarter of
2003 a maximum percentage for each executive officer of the bonus pool
applicable to such officer. The pools were established based on the net income
of the Company or, in the case of business unit leaders, the net income of such
business unit. The Committee then determined whether the officer was to receive
the maximum percentage amount or some lesser amount based on a discussion of the
assessment and recommendation of Mr. Goldberg.
Section 162(m) of the U.S. Internal Revenue 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 corporation's 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. Section 162(m) first became
applicable to the Company in 2003 during which time the Company approved and our
shareholders approved, the Senior Management Bonus Plan. The Senior Management
Bonus Plan is designed to assure that all bonus compensation paid to our covered
employees is considered qualified performance-based compensation within the
meaning of Section 162(m).
BASE SALARY
A competitive base salary is important in fostering a career
orientation among executives consistent with the long-term nature of the
Company's business objectives. The Executive Compensation Committee determines
the salary of each of the executive officers based on its consideration of the
CEO recommendations.
20
THE STOCK INCENTIVE PLAN
Awards under the 1999 Long-Term Incentive Plan supplement the bonuses
paid to the Named Executive Officers. The number of options granted to the
executive officers, in general, reflects the decision of the Executive
Compensation Committee to allocate a portion of compensation in stock options,
the value of which is directly linked to the future financial success of the
Company. The Long-Term Incentive Plan also allows the Executive Compensation
Committee to grant performance units, restricted shares and stock appreciation
rights. In 2003, the Executive Compensation Committee also awarded Arthur Murphy
25,000 restricted shares.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
For fiscal year 2003, the total cash compensation paid to Mr. Goldberg
was $1,400,000. For fiscal year 2003, Mr. Goldberg received a base salary of
$400,000. Mr. Goldberg received bonus compensation of $1,000,000. In fiscal year
2003, Mr. Goldberg was awarded options to purchase 50,000 shares of the common
stock of the Company. In determining the bonus and other compensation of the
Company's CEO for the fiscal year 2003, the Committee compared the Company's
performance to that of industry peers, as well as to the market's performance as
a whole. Among other things, the Committee considered the performance of the
Company's common stock, its return on investments made in other businesses, its
pre-tax return on equity, its earnings per share and comparable market data. Mr.
Goldberg's fiscal year 2003 award reflects his significant personal
contributions to the business and leadership in building the Company's revenues,
earnings, and capital position, and the financial results for fiscal year 2003.
EXECUTIVE COMPENSATION COMMITTEE
Carl Carlucci (Chair)
Walter Fiederowicz
AUDIT COMMITTEE REPORT*
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 and is included as Exhibit A to this proxy statement. Each
member of the Audit Committee is an "independent director" as defined in the
NASDAQ Stock Market listing standards and is
-------------------
* 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 of 1933 or the Exchange Act, whether made
before or after the date hereof and irrespective of any general incorporation
language in any filing.
21
independent within the meaning of Rule 10A-3 under the Securities Exchange Act
of 1934 (the "Exchange Act") and the Company's Corporate Governance Guidelines.
The Audit Committee's job is one of oversight as set forth in its
charter. It is not the duty of the Audit Committee to prepare the Company's
financial statements, to plan or conduct audits, or to determine that the
Company's financial statements are complete and accurate and are in accordance
with generally accepted accounting principles. The Company's management is
responsible for preparing the Company's financial statements and for maintaining
internal control and disclosure controls and procedures. 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 generally accepted accounting principles.
During the year 2003, at each of its meetings, the Committee met with
the Company's Chief Financial Officer and General Counsel. In addition, the
Committee meets with its independent accountants on a quarterly basis as
requested by the independent accountants. At each meeting, the Committee is
provided with the opportunity to meet privately with the independent accountants
as well as with management. In addition, at least once each year the Committee
meets with the Director of the Company's Internal Audit Department and the
Director of the Company's Compliance Department for reports on the status of
internal controls.
The Committee recommended to the Board that the Company's current
independent accountants, PricewaterhouseCoopers LLP, be appointed as the
independent accountants to conduct the audit for the fiscal year ended December
31, 2003. Pursuant to the revised charter, the Committee is directly responsible
for the appointment of the Company's independent accountants who shall report
directly to the Committee. The Company's 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 firm's independence.
Management represented to the Committee that the Company's consolidated
financial statements for fiscal 2003 were prepared in accordance with generally
accepted accounting principals 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 recommended that the Board of Directors include the
audited consolidated financial statements in the Company's Annual Report on Form
10-K for the year ended December 31, 2003 for filing with the Securities and
Exchange Commission.
22
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 LLP's independence.
AUDIT COMMITTEE
Walter Fiederowicz (Chair)
Shannon P. O'Brien
Arthur J. Roth
PROPOSAL NO. 2 RATIFICATION OF SELECTION
OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has selected
PricewaterhouseCoopers LLP as the Company's independent auditors for fiscal year
ending December 31, 2004. We are submitting the selection of independent
auditors for shareholders 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 auditors.
We are doing so (as we have done in prior years) 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 COMPANY'S SHAREHOLDERS VOTE FOR THE RATIFICATION
OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS OF THE
COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 2004.
23
PRINCIPAL ACCOUNTING FIRM FEES
The following table shows information about fees paid by the Company to
PricewaterhouseCoopers LLP:
PERCENTAGE OF PERCENTAGE OF
2003 SERVICES 2002 SERVICES
APPROVED BY APPROVED BY
2003 AUDIT COMMITTEE 2002(d) AUDIT COMMITTEE
-------- --------------- -------- ---------------
Fees paid by the $
Company:
Audit fees $274,525 100% $218,914 100%
Audit-related fees(a) 45,335 100% 12,400 100%
Tax fees(b) 183,328 100% 102,745 100%
All other fees(c) 1,516 100% 1,512 100%
------------------
(a) 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.
(b) 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.
(c) All other fees are fees for accounting and auditing research software.
(d) Prior year numbers have been conformed to current year presentation.
AUDIT COMMITTEE PRE-APPROVAL POLICY
In accordance with the Company's Audit Committee Pre-Approval Policy
(the "Pre-Approval Policy"), all audit and non-audit services performed for the
Company by the Company's 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 firm's
independence in the conduct of its auditing functions.
The Pre-Approval Policy provided 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.
24
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 Company's chief financial
officer, and must include a joint statement as to whether, in their view, the
request or application is consistent with the SEC's 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.
25
PERFORMANCE GRAPH
Set forth below is a line graph comparing the percentage change in the
cumulative total shareholder return on the Company's common stock against the
cumulative total return of the S&P Composite 500 Stock Index ("S&P 500 Index")
and the Financial Services Analytics, Inc. Composite Index ("FSA Composite
Index") an index of publicly traded brokerage firms for the Company's last five
fiscal years. The graph assumes that the value of the investment in the
Company's common stock and each index was $100 at December 31, 1998, and that
all dividends, if any, were reinvested.
FIRST ALBANY COMPANIES INC.
[FIRST ALBANY COMPANIES INC. LINE CHART]
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
FIRST ALBANY 100 140 88 75 97 211
S&P 500 INDEX 100 121 110 97 76 97
FSA COMPOSITE INDEX 100 135 202 157 123 183
26
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
The Company has an Executive Compensation Committee responsible for
approving the compensation of the Company's executive officers. Messrs. Carlucci
and Fiederowicz served on the Executive Compensation Committee during the 2003
fiscal year. Neither of the Executive Compensation Committee members is involved
in a relationship requiring disclosure as an interlocking executive
officer/director under any paragraph of Item 404 of Regulation S-K or as a
former officer or employee of the Company.
PROPOSAL NO. 3 ADOPTION
OF THE THIRD AMENDMENT TO
THE FIRST ALBANY COMPANIES INC.
1999 LONG-TERM INCENTIVE PLAN
In March of 1999, the First Albany Companies Inc. 1999 Long-Term
Incentive Plan (the "Plan") was adopted by the Board of Directors (the "Board")
of First Albany Companies Inc. (the "Company"), and on May 18, 1999, it was
approved by the Company's shareholders. On March 28, 2002, the Board adopted the
First Amendment to the First Albany Companies Inc. 1999 Long-Term Incentive Plan
to increase the number of shares that may be granted under the Plan from 800,000
shares to 1.6 million shares, and the Company's shareholders approved the First
Amendment at the 2002 Annual Meeting of Shareholders. On March 10, 2003, the
Board adopted the Second Amendment to the Plan to increase the number of shares
that may be granted under the Plan from 1.6 million shares to 2.4 million shares
and the Company's shareholders approved the Second Amendment at the 2003 Annual
Meeting of Shareholders.
On March 23, 2004, the Board adopted the Third Amendment to the Plan to
increase the number of shares that may be granted under the Plan from 2.4
million shares to 3.6 million shares. As of December 31, 2003, options and
restricted stock granted and outstanding under the Plan covered an aggregate of
1,920,983 shares, leaving 767,631 shares remaining for issuance pursuant to
subsequent grants. This increase will allow the Company to institute its new
equity compensation program, in which all senior employees receive a portion of
their incentive compensation in the form of restricted stock. This program is an
important part of the Company's overall effort to improve margins throughout its
businesses. The Company's shareholders are now requested to approve the Third
Amendment, the only purpose of which is to increase the number of shares that
may be granted under the Plan.
The Third Amendment will not be effective unless and until it is
approved by the affirmative vote of a majority of the votes cast at the Annual
Meeting on this proposal by the holders of the shares of Common Stock entitled
to vote thereat. Should such shareholder approval not be obtained, then the
Third Amendment will not be implemented but the Plan in effect prior to the
Third Amendment will continue to remain in effect.
THE BOARD RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS VOTE FOR THE
ADOPTION OF THE THIRD AMENDMENT TO THE FIRST ALBANY COMPANIES INC. 1999
LONG-TERM INCENTIVE PLAN.
27
Set forth below for the convenience of the Company's shareholders is a
summary description of the Plan.
PURPOSE
The purpose of the Plan is to further and promote the interests of the
Company, its subsidiaries and its shareholders by enabling the Company and its
subsidiaries to attract, retain and motivate employees and officers or those who
will become employees or officers of the Company and/or its subsidiaries, and to
align the interests of those individuals and the Company's stockholders.
NUMBER OF SHARES
The maximum number of shares of Common Stock as to which awards could
be granted may not exceed 2,400,000 shares or, if the Third Amendment is
approved, 3,600,000 shares.
If, however, any awards expire or terminate unexercised, the shares of
Common Stock allocable to the unexercised or terminated portion of such award
shall again be available for awards under the Plan to the extent of such
expiration or termination, subject to certain limitations under the Plan.
ADMINISTRATION
The administration, interpretation and operation of the Plan will be
vested in the Executive Compensation Committee who will serve at the pleasure of
the Board. The Executive Compensation Committee may, in its sole discretion,
delegate its authority to one or more senior executive officers for the purposes
of making awards to participants who are not subject to Section 16 of the
Securities Exchange Act of 1934.
ELIGIBILITY
Key employees and officers or those who will become key employees or
officers of the Company are eligible to receive awards under the Plan.
AWARDS UNDER THE PLAN
Introduction. Awards under the Plan may consist of stock options, stock
appreciation rights, restricted shares or performance unit awards, each of which
is described below. All awards will be evidenced by an agreement approved by the
Executive Compensation Committee. In the discretion of the Executive
Compensation Committee, an eligible employee may receive awards from one or more
of the categories described below, and more than one award may be granted to an
eligible employee. No determination has been made as to future awards which may
be granted under the Plan, although it is anticipated that recipients of awards
will include the current executive officers of the Company.
28
Stock Options and Stock Appreciation Rights. Stock options granted under the
Plan may be in the form of incentive stock options or non-qualified stock
options and may be granted alone or in addition to other awards under the Plan.
Stock options may be granted alone or in tandem with stock appreciation rights
("SARs"). SARs entitle a participant to receive, upon exercise, cash, restricted
shares or unrestricted shares of Common Stock as provided in the relevant award
agreement, with a value equal to (a) the difference between (i) the fair market
value on the exercise date of the shares with respect to which a SAR is
exercised and (ii) the fair market value on the date the SAR was granted,
multiplied by (b) the number of shares of Common Stock for which the SAR has
been exercised. No SAR may be exercised until six months after its grant or
prior to the exercisability of the stock option with which it is granted in
tandem, whichever is later.
The exercise price and other terms and conditions of such options will
be determined by the Executive Compensation Committee at the time of grant and,
in the case of incentive stock options, such exercise price will not be less
than 100 percent of the fair market value of the Common Stock on the date of the
grant. No term of any incentive stock options shall exceed ten years after
grant.
Unless otherwise determined by the Executive Compensation Committee or
provided in the relevant award agreement, stock options shall become exercisable
over a four-year period from the date of grant with 25% vesting on each
anniversary of the grant in that time period.
Restricted Share Awards. Restricted share awards are grants of Common
Stock made to a participant subject to conditions established by the Executive
Compensation Committee in the relevant award agreement. In no event shall
restricted shares vest prior to six months after the date of grant. A
participant may not sell or otherwise dispose of restricted shares until the
conditions imposed by the Executive Compensation Committee have been satisfied.
Performance Units. Performance units represent a monetary amount
designated in advance by the Executive Compensation Committee. Participants
receiving performance unit grants will only earn such amounts if the Company
and/or the participant achieve certain performance goals during a designated
performance period. The Executive Compensation Committee will establish such
performance goals and may use such measures as total shareholder return, return
on equity, net earnings growth, sales or revenue growth, comparison to peer
companies, individual or aggregate participant performance or such other
measures the Executive Compensation Committee deems appropriate. If all or a
portion of a performance unit is earned, payment of the designated value thereof
will be made in cash, in unrestricted Common Stock or in restricted shares or in
any combination thereof, as provided in the relevant award agreement.
FORFEITURE UPON TERMINATION
Unless otherwise provided in the relevant award agreement, if a
participant's employment is terminated for any reason, any unexercisable stock
option or SAR shall be forfeited and canceled by the Company. Such participant's
right to exercise any then-exercisable stock option or SAR will terminate 90
days after the date of such termination (but not beyond the stated term of such
stock option or SAR); provided, however, the Executive Compensation
29
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 of 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.
Unless otherwise provided in the relevant award agreement, if a
participant's employment is terminated for any reason (other than due to death,
total disability or retirement) (a) prior to the lapsing of any applicable
restriction period, or the satisfaction of any other restrictions, applicable to
any grant of restricted shares, or, (b) prior to the completion of any
performance period in respect of any grant of performance units, such restricted
shares or performance units, as the case may be, will be forfeited by such
participant; provided, however, that the Executive Compensation Committee may,
in its sole discretion, determine within 90 days after such termination that all
or a portion of such restricted shares or performance units, as the case may be,
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 or shall be entitled to earn into the participant's performance
units.
CHANGE OF CONTROL
If a Change of Control, as defined in the Plan, occurs (i) all Stock
Options and/or SARs then unexercised and outstanding will become fully vested
and exercisable, (ii) all restrictions, terms and conditions applicable to
restricted shares then outstanding will be deemed lapsed and satisfied and (iii)
all performance units will be deemed to have been fully earned, 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.
RECAPITALIZATION ADJUSTMENTS
In the event of any change in capitalization affecting the Common Stock
of the Company, including without limitation, a distribution, recapitalization,
stock split, reverse stock split, consolidation, subdivision, split-up,
spin-off, split-off, combination, or exchange of Common Stock or other corporate
transaction or event that affects the Common Stock such that an adjustment is
determined by the Board, in its sole discretion, to be necessary or appropriate
in order to prevent dilution or enlargement of benefits or potential benefits
intended to be made available under the Plan, the Board may, in any manner that
it in good faith deems equitable, adjust any or all of (i) the maximum number of
shares of Common Stock of the Company with respect to which awards may be
granted, (ii) the number of shares of Common Stock of the Company (or number and
kind of other securities or property) subject to outstanding awards, and (iii)
the exercise price or other price per share with respect to any outstanding
awards.
30
AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Board may amend, suspend or terminate the Plan (or any portion
thereof) at any time; provided, however, that no amendment by the Board may,
without the approval of a majority of the stockholders, (i) increase the number
of shares of Common Stock which may be issued under the Plan, except as provided
therein, (ii) materially modify the requirements as to eligibility for
participation in the Plan, (iii) materially increase the benefits accruing to
participants under the Plan except as permitted therein, provided Rule 16b-3 of
the Securities and Exchange Act of 1934 does not require shareholder approval.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following is a brief and general summary of some United States
federal income tax consequences applicable to the Plan. The summary does not
reflect any provisions of the income tax laws of any state, local or foreign
taxing jurisdiction. Because the tax consequences of events and transactions
under the Plan depend upon various factors, including an individual's own tax
status, each participant who receives an award under the Plan should consult a
tax advisor.
Incentive Stock Options. Stock options granted under the Plan may be incentive
stock options (within the meaning of Section 422 of the Code) or non-qualified
stock options. Upon the grant of an incentive stock option, the optionee will
not recognize any income. Generally, no income is recognized by the optionee
upon the exercise of an incentive stock option. The optionee must increase his
or her alternative minimum taxable income for the taxable year in which he or
she exercised the incentive stock option by the amount that would have been
ordinary income had the option not been an incentive stock option.
Upon the subsequent disposition of shares acquired upon the exercise of an
incentive stock option, the federal income tax consequences will depend upon
when the disposition occurs and the type of disposition. If the shares are
disposed of by the optionee after the later to occur of (i) the end of the
two-year period beginning the day after the day the incentive stock option is
awarded to the optionee, or (ii) the end of the one-year period beginning on the
day after the day the shares are issued to the optionee (the later of (i) or
(ii) being the "ISO Holding Period"), any gain or loss realized upon such
disposition will be long-term capital gain or loss, and the Company (or a
subsidiary) will not be entitled to any income tax deduction in respect of the
option or its exercise. For purposes of determining the amount of such gain or
loss, the optionee's tax basis in the shares will be the option price.
Generally, if the shares are disposed of by the optionee in a taxable
disposition within (i) the two-year period beginning on the day after the day
the option was awarded to the optionee, or (ii) the one-year period beginning on
the day after the day the shares are issued to the optionee, the excess, if any,
of the amount realized (up to the fair market value of the shares on the
exercise date) over the option price will be compensation taxable to the
optionee as ordinary income, and the Company generally will be entitled to a
deduction (subject to the provisions of Section 162(m) of the Code discussed
below under the caption "Limits on Deductions") equal to the amount of ordinary
income realized by the optionee. Any amount realized upon such a disposition by
the optionee in excess of the fair market value of the shares on the exercise
date will be capital gain.
31
If an optionee has not remained an employee of the Company during the period
beginning with the grant of an incentive stock option and ending on the day
three months (one year if the optionee becomes disabled) before the date the
option is exercised (other than in the case of the optionee's death), the
exercise of such option will be treated as the exercise of a non-qualified stock
option with the tax consequences described below.
Non-Qualified Stock Options. In general, upon the grant of a non-qualified stock
option, an optionee will not recognize any income. At the time a nonqualified
option is exercised, the optionee will recognize compensation taxable as
ordinary income, and the Company generally will be entitled to a deduction
(subject to the provisions of Section 162(m) of the Code discussed below under
the caption "Limits on Deductions"), in an amount equal to the difference
between the fair market value on the exercise date of the shares acquired
pursuant to such exercise and the option price. Upon a subsequent disposition of
the shares, the optionee will recognize long- or short-term capital gain or
loss, depending upon the holding period of the shares. For purposes of
determining the amount of such gain or loss, the optionee's tax basis in the
shares will be the fair market value of such shares on the exercise date.
Effect of Share-for-Share Exercise. If an optionee elects to tender shares of
Common Stock in partial or full payment of the option price for shares to be
acquired through the exercise of an option, generally the optionee will not
recognize any gain or loss on such tendered shares. However, if the shares
tendered in connection with any share-for-share exercise were previously
acquired upon the exercise of an incentive stock option, and such
share-for-share exercise occurs during the ISO Holding Period for such shares,
then there will be a taxable disposition of the tendered shares with the tax
consequences described above for the taxable dispositions during the ISO Holding
Period of the shares acquired upon the exercise of an incentive stock option.
If the optionee tenders shares upon the exercise of a nonqualified option, the
optionee will recognize compensation taxable as ordinary income and the Company
generally will be entitled to a deduction (subject to the provisions of Section
162(m) of the Code discussed below under the caption "Limits on Deductions") in
an amount equal only to the fair market value of the number of shares received
by the optionee upon exercise which is in excess of the number of tendered
shares, less any cash paid by the optionee.
Restricted Shares. A participant will not recognize any income upon the award of
restricted shares unless the participant makes an election under Section 83(b)
of the Code in respect of such grant, as described below. Unless a participant
has made an election under Section 83(b) of the Code in respect of any
restricted shares, any dividends received by the participant with respect to
restricted shares prior to the date the participant recognizes income with
respect to such award (as described below) must be treated by the participant as
compensation taxable as ordinary income, and the Company will be entitled to a
deduction, in an amount equal to the amount of ordinary income recognized by the
participant. After the terms and conditions applicable to the restricted shares
are satisfied, or if the participant has made an election under Section 83(b) of
the Code in respect of the restricted shares, any dividends received by the
participant in respect of such award will be treated as a dividend taxable as
ordinary income, and the Company will not be entitled to a deduction in respect
of any such dividend payment.
32
Unless the participant has made an election under Section 83(b) of the Code (as
described below), at the time the terms and conditions applicable to the
restricted shares are satisfied, the participant will recognize compensation
taxable as ordinary income at such time, and the Company generally will be
entitled to a deduction in an amount equal to the then fair market value of the
shares of Common Stock for which the terms and conditions applicable to the
restricted share award have been satisfied. The participant's tax basis for any
such shares of Common Stock will be the fair market value on the date such terms
and conditions are satisfied.
A participant may irrevocably elect under Section 83(b) of the Code to recognize
compensation taxable as ordinary income, in which case the Company will be
entitled to a corresponding deduction in an amount equal to the fair market
value of such restricted shares (determined without regard to any restrictions
thereon) on the date of grant. Such an election must be made by the participant
not later than 30 days after the date of grant. If such an election is made, no
income will be recognized by the participant (and the Company will not be
entitled to a corresponding deduction) at the time the applicable terms and
conditions are satisfied. The participant's tax basis for the restricted shares
received and for any shares of Common Stock subsequently held in respect thereof
will be the fair market value of the restricted shares (determined without
regard to any restrictions thereon) on the date of grant. If a participant makes
such an election and subsequently all or part of the award is forfeited, the
participant will not be entitled to a deduction as a result of such forfeiture.
The holding period for capital gain or loss purposes in respect of the Common
Stock underlying an award of restricted shares shall commence when the terms and
conditions applicable to the restricted shares are satisfied, unless the
participant makes a timely election under Section 83(b) of the Code. In such
case, the holding period will commence immediately after the grant of such
restricted shares.
Performance Units. A participant will not recognize any income upon the award of
a performance unit. If the performance goals applicable to the performance unit
are achieved during the applicable performance period and such performance units
are earned, a participant will recognize compensation taxable as ordinary income
when he or she receives payment with respect to such performance unit, and at
such time the Company will be entitled to a deduction equal to the amount of
cash or the then fair market value of unrestricted Common Stock received by the
participant in payment of the performance units. The participant's tax basis for
any such shares of Common Stock would be the fair market value on the date such
unrestricted shares are transferred to the participant. If all or a portion of
the performance units are paid in restricted shares, see "Restricted Shares"
above for a discussion of the applicable tax treatment.
Limits on Deductions. Under Section 162(m) of the Code, the amount of
compensation paid to the chief executive officer and the four other most highly
paid executive officers of the Company in the year for which a deduction is
claimed by the Company (including its subsidiaries) is limited to $1,000,000 per
person in any year, except that qualified performance-based compensation will be
excluded for purposes of calculating the amount of compensation subject to this
$1,000,000 limitation. The ability of the Company to claim a deduction for
compensation paid to any other executive officer or employee of the Company
(including its subsidiaries) is not affected by this provision.
33
The Company has structured the Plan so that the Company may claim a deduction in
connection with (i) the exercise of non-qualified stock options and/or SARs,
(ii) the disposition during the ISO Holding Period by an optionee of shares
acquired upon the exercise of incentive stock options, and (iii) the payment of
any performance units, provided that, in each case, the requirements imposed on
qualified performance-based compensation under Section 162(m) of the Code and
the regulations thereunder are satisfied with respect to such awards. Because
restricted share awards under the Plan are not deemed to be qualified
performance-based compensation under Section 162(m) of the Code, amounts for
which the Company may claim a deduction upon the lapse of any restrictions on
such restricted share awards will be subject to the limitations on deductibility
under Section 162(m).
Additional Information. The recognition by an employee of compensation income
with respect to a grant or an award under the Plan will be subject to
withholding for federal income and employment tax purposes. If an employee, to
the extent permitted by the terms of a grant or award under the Plan, uses
shares of Common Stock to satisfy the federal income and employment tax
withholding obligation, or any similar withholding obligation for state and
local tax obligations, the employee will recognize a capital gain or loss,
short-term or long-term, depending on the tax basis and holding period for such
shares of Common Stock.
If the provisions of the Plan relating to a change in control become applicable,
certain compensation payments or other benefits received by "disqualified
individuals" (as defined in Section 280G(c) of the Code) under the Plan or
otherwise may cause or result in "excess parachute payments" (as defined in
Section 280G(b)(I) of the Code). Pursuant to Section 280G of the Code, any
amount that constitutes an excess parachute payment is not deductible by the
Company. In addition, Section 4999 of the Code generally imposes a 20% excise
tax on the amount of any such excess parachute payment received by such a
disqualified individual, and any such excess parachute payments will not be
deductible by the Company (or a subsidiary).
2003 AWARDS UNDER THE 1999 LONG-TERM INCENTIVE PLAN
During the last fiscal year, the executive officers named in the
Summary Compensation Table were granted the number of options set forth in the
Option Grant Table under the Plan, and the current executive officers as a group
were granted 175,000 options in the aggregate under the Plan. The current
directors who are not executive officers were granted no options under the Plan,
and all employees who are not executive officers were granted 81,000 options in
the aggregate. Mr. Murphy also received 25,000 restricted shares under the Plan
in 2003. All employees who are not executive officers were granted 143,350
shares of restricted stock under the Plan in 2003.
OTHER MATTERS
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
Meeting. If any other business should come before the Meeting, it is intended
that the persons named in the enclosed proxy will have discretionary authority
to vote the shares that they represent.
34
If a shareholder intends to present a proposal at the Company's Annual
Meeting of Shareholders to be held in 2005 and seeks to have the proposal
included in the Company's proxy statement relating to that meeting, pursuant to
Rule 14a-8 of the Securities Exchange Act of 1934, as amended, the proposal must
be received by the Company no later than the close of business on November 28,
2004. If a shareholder wishes to present a matter at the Company's Annual
Meeting of Shareholders to be held in 2005 that is outside of the processes of
Rule 14a-8, the proposal must be received by the Company no earlier than January
26, 2005 and no later than the close of business on February 15, 2005. After
that date, the proposal will be considered untimely and the Company's proxies
will have discretionary voting authority with respect to such matter.
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
March 29, 2004
/s/ Stephen P. Wink
-----------------------
Stephen P. Wink
Secretary
35
EXHIBIT A
CHARTER
AUDIT COMMITTEE
EFFECTIVE AS OF JANUARY 29, 2004
FIRST ALBANY COMPANIES INC.
PURPOSE
The primary purpose of the Audit Committee (the "Committee") is to
assist the Board of Directors (the "Board") in fulfilling its responsibility to
oversee (i) the integrity of the Company's financial reporting process,
including the financial reports and other financial information provided by the
Company to its stockholders, any governmental or regulatory body and the public,
or other uses thereof; (ii) the Company's systems of internal accounting and
financial controls; (iii) the annual independent audit of the Company's
financial statements; (iv) the independent auditors' qualifications and
independence; (v) the Company's compliance with legal and regulatory
requirements; and (vi) the Company's management of market, credit, liquidity and
other financial and operational risks.
MEMBERSHIP
The Committee shall be comprised of not less than three members of the
Board. The Committee members shall be appointed by the Board, taking into
consideration the recommendations of the Committee on Directors and Corporate
Governance, for one-year terms at the annual meeting of the Board. The Committee
shall appoint the Committee's Chairperson. The Committee's composition shall
meet the independence, financial literacy and experience requirements of the
listing standards of NASDAQ, and the independence and accounting or related
financial management expertise requirements of the Sarbanes-Oxley Act of 2002
and any rules adopted thereunder.
FUNCTIONS
The Committee's job is one of oversight and it recognizes that the
Company's management is responsible for preparing the Company's financial
statements and that the independent auditors are responsible for auditing those
financial statements. Additionally, the Committee recognizes that management,
including the internal audit staff, as well as the independent auditors, have
more time, knowledge and detailed information on the Company than do Committee
members; consequently, in carrying out its oversight responsibilities, the
Committee is not providing any expert or special assurance as to the Company's
financial statements or any professional certification as to the independent
auditor's work.
36
The following functions shall be the common recurring activities of the
Committee in carrying out its oversight function. These functions are set forth
as a guide with the understanding that the Committee may diverge from this guide
as appropriate given the circumstances.
Independent Auditors and Audit Process
- The Committee shall meet with the independent auditors and the
Company's management, and such other personnel as it deems appropriate
and discuss such matters as it considers appropriate. The Committee
must meet separately with the independent auditors and the Company's
management periodically, normally at least once each fiscal quarter.
- The Committee shall have the sole authority and responsibility to
appoint, retain (subject to shareholder ratification), compensate,
evaluate and, where appropriate, terminate the independent auditor.
- In this connection, the Committee shall consider such matters
as the experience and qualifications of the senior members of
the independent auditor team, the quality control procedures
of the independent auditor, the independent auditors' audit
plan and procedures, and whether there should be a regular
rotation of the firm acting as the Company's independent
auditor.
- The Committee shall review the independent auditors' compensation and
the proposed terms of their engagement, and consider their audit plan
and procedures and review any problems arising from the annual audit
examination.
- The Committee shall:
- Annually request from the independent auditors a formal
written statement delineating all relationships between the
independent auditor and the Company consistent with
Independence Standards Board Standard No. 1;
- Discuss with the independent auditors any such disclosed
relationships and their impact on the independent auditor's
independence; and
- Pre-approve all permitted non-audit services to be performed
by the independent auditor and establish policies and
procedures for the engagement of the independent auditor to
provide permitted non-audit services.
- Establish guidelines for the Company's hiring of employees of
the independent auditor who were engaged on the Company's
account.
- Obtain from the independent auditors annually and review a
report describing: (i) the independent auditors' internal
quality-control procedures; (ii) any material issues raised
during the most recent internal quality-control review, or
37
peer review, or in any review by a governmental or
professional association within the preceding five years with
respect to an audit carried out by the independent auditors;
(iii) any steps taken to address such issues; and (iv) all
relationships between the independent auditors and the Company
and their impact on the independent auditors' independence,
all with a view to evaluating the independent auditors'
(including the lead partner's) qualifications, performance and
independence.
Financial Statements
- The Committee shall review with management and the independent auditors
the audited financial statements to be included in the Company's Annual
Report on Form 10-K (or the Annual Report to Shareholders if
distributed prior to the filing of Form 10-K), including the Company's
disclosure under Management's Discussion and Analysis of Financial
Conditions and Results of Operations, and review and consider with the
independent auditors the matters required to be discussed by Statement
of Auditing Standards ("SAS") No. 61. The Committee shall determine
whether to recommend inclusion of these financial statements in these
reports.
- The Committee shall review with the independent auditors the Company's
interim financial results to be included in the Company's quarterly
reports, including the Company's disclosure under Management's
Discussion and Analysis of Financial Conditions and Results of
Operations, to be filed with the Securities and Exchange Commission and
the matters required to be discussed by SAS No. 61, prior to the
Company's filing of the Form 10-Q.
- The Committee shall consider major changes and other major questions of
choice respecting the appropriate accounting principles, estimates and
practices to be applied in the preparation of the Company's financial
statements.
- The Committee shall review material pending legal proceedings involving
the Company and consider other contingent liabilities, as well as other
risks and exposures, that may have a material impact on the financial
statements.
- The Committee shall review with management and the independent auditors
the financial statement effects of pending regulatory and accounting
initiatives.
- The Committee shall review off-balance sheet structures on the
Company's financial statements.
- The Committee shall discuss with management earnings press releases, as
well as financial information and earnings guidance provided to
analysts and rating agencies. Discussion of earnings releases as well
as financial information and earnings guidance may be done generally
(i.e., discussion of the types of information to be disclosed and the
type of presentation to be made).
38
- The Committee shall review any significant disputes between management
and the independent auditor that arose in connection with the
preparation of the Company's financial statements.
- The Committee shall prepare an Audit Committee Report for inclusion in
the Company's proxy statement.
Internal Controls
- The Committee shall review, and then discuss with the independent
auditor and management, the quality and adequacy of the Company's
internal controls, including the adequacy of the staffing and budget of
the Company's internal audit staff.
- The Committee shall advise the Board with respect to the Company's
policies and procedures regarding compliance with applicable laws and
regulations and with the Company's Code of Conduct.
- The Committee shall obtain reports from management, the Company's
senior internal auditing executive and the independent auditors with
respect to compliance by the Company and its subsidiary entities with
applicable legal requirements and the Company's Code of Conduct,
including disclosure of insider and affiliated party transactions.
- The Committee shall inquire into evidence of illegal conduct or
non-compliance with Company policies.
- Establish procedures for the receipt, retention and treatment of
complaints and allegations which are received by or otherwise come to
the attention of the Company regarding accounting, internal accounting
controls or auditing matters, illegal conduct or non-compliance with
Company policies.
- Establish procedures for employees of the Company to report to the
Committee, on an anonymous and confidential basis, concerns with
respect to accounting or auditing matters.
- Review disclosures made to the Committee by the Company's CEO and CFO
during their certification process for the Company's annual and
quarterly filings with the Securities and Exchange Commission about any
significant deficiencies in the design or operation of the Company's
internal controls and procedures for financial reporting and disclosure
procedures and controls, or material weaknesses therein, and any fraud
involving management or other employees who have a significant role in
the Company's internal controls and procedures for financial reporting.
- The Committee shall review related party transactions.
39
PROCEDURES
- In discharging its oversight role, the Committee is empowered to
investigate any matter brought to its attention with full access to all
books, records, facilities and personel of the Company and the power to
retain outside counsel, auditors or other experts for this purpose.
- The Committee shall have the authority to retain, determine funding and
other retention terms for, and if necessary, terminate such outside
counsel, experts and other advisors as it determines appropriate to
assist in the full performance of its functions, and the Company shall
make such funding available to the Committee.
- The Committee shall meet as often as deemed necessary or appropriate in
its judgment, not less frequently than quarterly, either in person or
by phone. The Committee shall meet with the independent auditors at
least quarterly.
- The Committee shall meet on occasion with the independent and internal
auditors outside the presence of senior management.
- The Committee shall review with the independent auditors any problems
or difficulties the auditors may have encountered and any management
letter provided by the auditors and the Company's response to that
letter.
- The Committee shall conduct an annual self-evaluation.
- The Committee shall review the adequacy of this Charter on an annual
basis.
DISCLOSURE
THIS CHARTER WILL BE MADE AVAILABLE ON THE COMPANY'S WEBSITE.
40
ANNUAL MEETING OF SHAREHOLDERS OF
FIRST ALBANY COMPANIES INC.
APRIL 27, 2004
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the envelope provided.
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. The ratification of the appointment of [ ] [ ] [ ]
PricewaterhouseCoopers LLP as independent
auditors of the Company for fiscal year
ending December 31, 2004.
NOMINEES:
[] FOR ALL NOMINEES - Alan P. Goldberg (To expire in 2007)
- Robert F. Campbell (To expire in 2007) 3. The approval of the adoption of the [ ] [ ] [ ]
[] WITHHOLD AUTHORITY - Carl P. Carlucci, (To expire in 2007) Third Amendment to the First Albany
FOR ALL NOMINEES Ph.D. Companies Inc. 1999 Long-Term
- Arthur J. Roth (To expire in 2007) Incentive Plan.
- Arthur T. Murphy (To expire in 2006)
[] FOR ALL EXCEPT 4. In their discretion, the proxies are authorized to vote
(See instructions below) upon any other business that may properly come before the
meeting.
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here:
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 changes
to the registered name(s) on the account may not be submitted via this method.
[ ]
Signature of Shareholder _____________________ Date:_______________ Signature of Shareholder ___________________ 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.
1
FIRST ALBANY COMPANIES INC.
30 SOUTH PEARL STREET
ALBANY, NEW YORK 12207
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
George C. McNamee and Alan P. Goldberg, 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 March 10, 2004 at the Annual Meeting of
Shareholders to be held at 10:00 A.M. (EDT) on Tuesday, April 27, 2004 at the
offices of the Company at 30 South Pearl Street, Albany, New York, 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:
ANNUAL MEETING OF SHAREHOLDERS OF
FIRST ALBANY COMPANIES INC.
APRIL 27, 2004
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) from any touch-tone
telephone and follow the instructions. Have ACCOUNT NUMBER _________________
your proxy card available when you call.
- OR -
INTERNET - Access "WWW.VOTEPROXY.COM" and
follow the on-screen instructions. Have your
proxy card available when you access the web
page.
Please detach along perforated line and mail in the envelope provided
IF you are not voting via telephone or the Internet.
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. The ratification of the appointment of [ ] [ ] [ ]
PricewaterhouseCoopers LLP as independent
auditors of the Company for fiscal year
ending Dece
NOMINEES:
[] FOR ALL NOMINEES - Alan P. Goldberg (To expire in 2007)
- Robert F. Campbell (To expire in 2007) 3. The approval of the adoption of the [ ] [ ] [ ]
[] WITHHOLD AUTHORITY - Carl P. Carlucci, (To expire in 2007) Third Amendment to the First Albany
FOR ALL NOMINEES Ph.D. Companies Inc. 1999 Long-Term
- Arthur J. Roth (To expire in 2007) Incentive Plan.
- Arthur T. Murphy (To expire in 2006)
[] FOR ALL EXCEPT 4. In their discretion, the proxies are authorized to vote
(See instructions below) upon any other business that may properly come before the
meeting.
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here:
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 changes
to the registered name(s) on the account may not be submitted via this method.
[ ]
Signature of Shareholder _____________________ Date:_______________ Signature of Shareholder ___________________ 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.
- -