SCHEDULE 14A

(RULE 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT

 

SCHEDULE 14A INFORMATION

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

Filed by the Registrant  þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

þ  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

o  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to Section 240.14a-12

 

BROADPOINT SECURITIES GROUP, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

þ  No fee required.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April [  ], 2009

 

Dear Shareholder:

 

You are cordially invited to attend the 2009 annual meeting (the “Annual Meeting”) of shareholders of Broadpoint Securities Group, Inc. (the “Company”) to be held at 10:00 a.m., local time, on [May 14, 2009] at the offices of the Company, 12 East 49th Street, 31st Floor, New York, NY 10017. Enclosed are the proxy materials for the Annual Meeting. Please read those materials carefully.

 

At the Annual Meeting, you will be asked (1) to elect one Class I director, three Class II directors and one Class III director of the Board of Directors whose terms will expire at the annual meeting of shareholders in 2011, 2012 and 2010, respectively; (2) to approve an amendment and restatement of the Broadpoint Securities Group, Inc. 2003 Non-Employee Directors Stock Plan to increase the number of shares available for issuance; (3) to approve an amendment and restatement of the Broadpoint Securities Group, Inc. 2007 Incentive Compensation Plan to increase the number of shares available for issuance; (4) to approve an amendment to the Company’s certificate of incorporation to effect a reverse stock split at a ratio of not less than one-for-three, nor more than one-for-six, at any time prior to [May 14, 2010], with the exact ratio to be determined by the Board of Directors; and (5) to ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm of the Company for the fiscal year ending December 31, 2009. The Board of Directors unanimously recommends a vote FOR each of these proposals.

 

All shareholders of record at the close of business on [April 3, 2009] of our outstanding shares of common stock are entitled to notice of and vote at the Annual Meeting. A list of shareholders entitled to vote will be available for examination at the meeting.

 

Your participation in the Annual Meeting, in person or by proxy, is important. Whether or not you plan to attend the Annual Meeting in person, you may complete, sign, date and return the enclosed proxy card promptly in the accompanying postage paid envelope. In addition to using the traditional proxy card, most shareholders also have the choice of voting over the Internet or by telephone.

 

I look forward to seeing those of you who will be able to attend the meeting.

 

Sincerely yours,

 

 

Lee Fensterstock

Chairman of the Board and Chief Executive Officer

12 East 49th Street, 31st Floor

New York, NY 10017

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To Be Held [May 14, 2009]

 

NOTICE IS HEREBY GIVEN that the 2009 annual meeting (the “Annual Meeting”) of the shareholders of Broadpoint Securities Group, Inc. (the “Company”) will be held at the offices of the Company, 12 East 49th Street, 31st Floor, New York, NY 10017, on [May 14, 2009] at 10:00 a.m., local time, for the following purposes:

 

(1) To elect one Class I director, three Class II directors and one Class III director of the Board of Directors whose terms will expire at the annual meeting of shareholders in 2011, 2012 and 2010, respectively;

 

(2) To consider and act upon a proposal to approve an amendment and restatement of the Broadpoint Securities Group, Inc. 2003 Non-Employee Directors Stock Plan (the “2003 Plan”) to increase the number of shares available for issuance;

 

(3) To consider and act upon a proposal to approve an amendment and restatement of the Broadpoint Securities Group, Inc. 2007 Incentive Compensation Plan (the “2007 Plan”) to increase the number of shares available for issuance;

 

(4) To consider and act upon a proposal to approve an amendment to the Company’s certificate of incorporation (the “Certificate of Incorporation”) to effect a reverse stock split at a ratio of not less than one-for-three, nor more than one-for-six, at any time prior to [May 14, 2010], with the exact ratio to be determined by the Board of Directors;

 

(5) To consider and act upon a proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm of the Company for the fiscal year ending December 31, 2009; and

 

(6) To consider and act upon such other business as may properly come before the meeting or any adjournment thereof.

 

We ask that you give these matters your careful attention.

 

The Broadpoint Securities Group, Inc. Board of Directors unanimously recommends that the shareholders vote (1) “FOR” the election of the five persons named as nominees under “Election of Directors;” (2) “FOR” the proposal to amend the Broadpoint Securities Group, Inc. 2003 Non-Employee Directors Stock Plan; (3) “FOR” the proposal to amend the Broadpoint Securities Group, Inc. 2007 Incentive Compensation Plan; (4) “FOR” the proposal to amend the Company’s certificate of incorporation to effect a reverse stock split; and (5) “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm of the Company for the fiscal year ending December 31, 2009.

 

Holders of common stock of record as of the close of business on [April 3, 2009] are entitled to receive notice of and vote at the Annual Meeting of the shareholders. A list of such shareholders may be examined at the Annual Meeting.

 

Your participation in the Annual Meeting, in person or by proxy, is important. For the election of directors, the five nominees receiving the most “For” votes from the shares present and entitled to vote at the Annual Meeting, either in person or by proxy, will be elected. For Proposal Nos. 2, 3 and 5 to be approved, such Proposal must receive “For” votes constituting a majority of the votes cast at the Annual Meeting with respect to shares entitled to vote thereon. For Proposal No. 4 to be approved, such Proposal must receive “FOR” votes constituting a majority of all outstanding shares of our common stock entitled to vote thereon.

As you may know, MatlinPatterson FA Acquisition LLC (“MatlinPatterson”) is the shareholder of record of a majority of the Company’s outstanding capital stock, holding 43,093,261 shares of the Company’s common stock as of the record date (representing approximately 54% of the Company’s outstanding shares of common stock). MatlinPatterson’s vote “For” any of the Proposals is sufficient to approve any such Proposal. Based on the indication we have received from MatlinPatterson, we anticipate that all of the Proposals will be approved.

 

The Proxy Statement, the Proxy Card, the Annual Report, and any amendments to the foregoing materials that are required to be furnished to shareholders are available for you to review online at www.bpsg.com/proxy.

 

We hope that you are planning to attend the Annual Meeting personally and we look forward to seeing you. Whether or not you are able to attend in person, it is important that your shares be represented at the Annual Meeting. For that reason we ask that you promptly sign, date, and mail the enclosed proxy card in the return envelope provided. You may also have the option of voting over the Internet or by telephone. Please refer to your proxy materials or the information forwarded by your bank, broker or other holder of record to see which voting methods are available to you. Shareholders who attend the Annual Meeting may withdraw their proxies and vote in person.

 

By Order of the Board of Directors

 

 

Patricia A. Arciero-Craig

Secretary

 

New York, New York

April [  ], 2009

Table of Contents

 

12 East 49th Street, 31st Floor

New York, NY 10017

 

 

 

PROXY STATEMENT

 

 

 

The following are some questions that you, as a shareholder of Broadpoint Securities Group, Inc., may have regarding the matters being considered at the Annual Meeting of shareholders and the answers to those questions. Broadpoint Securities Group, Inc. urges you to read carefully the remainder of this document because the information in this section does not provide all the information that might be important to you with respect to the matters being considered at the Annual Meeting. The words “we,” “our,” and “us” as used in this Proxy Statement refer to Broadpoint Securities Group, Inc. and its subsidiaries.

 

Why am I receiving these materials?

 

We sent you this Proxy Statement and the enclosed proxy card because the Board of Directors (the “Board” or “Board of Directors”) of Broadpoint Securities Group, Inc. (sometimes referred to as the “Company” or “Broadpoint”) is soliciting your proxy to vote at our 2009 annual meeting (the “Annual Meeting”) of shareholders to be held on [May 14, 2009]. You are invited to attend the Annual Meeting to vote on the Proposals described in this Proxy Statement. However, you do not need to attend the meeting to vote your shares. Instead, you may simply complete, sign and return the enclosed proxy card.

 

We intend to mail this Proxy Statement and accompanying proxy card on or about April [  ], 2009 to all shareholders of record entitled to vote at the Annual Meeting.

 

What am I voting on?

 

There are five matters scheduled for a vote at the Annual Meeting:

 

(1) To elect one Class I director, three Class II directors and one Class III director of the Board of Directors whose terms will expire at the annual meeting of shareholders in 2011, 2012 and 2010, respectively;

 

(2) To consider and act upon a proposal to approve an amendment and restatement of the Broadpoint Securities Group, Inc. 2003 Non-Employee Directors Stock Plan (the “2003 Plan”) to increase the number of shares available for issuance;

 

(3) To consider and act upon a proposal to approve an amendment and restatement of the Broadpoint Securities Group, Inc. 2007 Incentive Compensation Plan (the “2007 Plan”) to increase the number of shares available for issuance;

 

(4) To consider and act upon a proposal to approve an amendment to the Company’s certificate of incorporation (the “Certificate of Incorporation”) to effect a reverse stock split at a ratio of not less than one-for-three, nor more than one-for-six, at any time prior to [May 14, 2010], with the exact ratio to be determined by the Board of Directors; and

(5) To consider and act upon a proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm of the Company for the fiscal year ending December 31, 2009.

 

Any other matters that properly become before the meeting and any adjournment thereof will also be considered and acted upon.

 

Who can vote at the Annual Meeting?

 

Only shareholders of record at the close of business on [April 3, 2009] will be entitled to vote at the Annual Meeting. At the close of business on this record date, there were [81,556,246] shares of common stock outstanding and entitled to vote.

 

Shareholder of Record: Shares Registered in Your Name

 

If at the close of business on [April 3, 2009] your shares were registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, then you are a shareholder of record. As a shareholder of record, you may vote in person at the meeting or vote by proxy. Whether or not you plan to attend the meeting, we urge you to complete and return the enclosed proxy card to ensure your vote is counted.

 

Beneficial Owner: Shares Registered in the Name of a Broker or Bank

 

If at the close of business on [April 3, 2009] your shares were held in an account at a brokerage firm, bank, dealer, or other similar organization and you are not a shareholder of record, then you are the beneficial owner of shares registered in the name of such organization as your nominee or “street name,” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered the shareholder of record for purposes of voting your shares at the Annual Meeting. As a beneficial owner, you have the right to direct your broker or other nominee as to how to vote the shares in your account. You are also invited to attend the Annual Meeting. However, since you are not the shareholder of record, you will not be able to vote your shares in person at the meeting unless you request and obtain a valid proxy from your broker or other agent.

 

How do I vote?

 

For each of the matters to be voted on, you may vote “FOR” or “AGAINST” or abstain from voting. The procedures for voting are fairly simple:

 

Shareholder of Record: Shares Registered in Your Name

 

If you are a shareholder of record, you may vote in person at the Annual Meeting or vote by proxy. Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the meeting and vote in person if you have already voted by proxy.

 

 

IF YOU HAVE ANY QUESTIONS OR NEED ASSISTANCE WITH VOTING YOUR SHARES, PLEASE CONTACT AMERICAN STOCK TRANSFER AND TRUST COMPANY AT 1-800-776-9437.

Beneficial Owner: Shares Registered in the Name of Broker or Bank

 

If you are a beneficial owner of shares registered in the name of your broker, bank or other agent, you should have received a proxy card and voting instructions with these proxy materials from that organization rather than directly from us.

 

 

IF YOU HAVE ANY QUESTIONS OR NEED ASSISTANCE WITH VOTING YOUR SHARES, PLEASE CONTACT YOUR BROKER, BANK OR OTHER NOMINEE.

 

How many votes do I have?

 

On each matter to be voted upon, you have one vote for each share of common stock you own as of [April 3, 2009].

 

What if I return a proxy card but do not make specific choices?

 

If you return a signed and dated proxy card without marking any voting selections, your shares will be voted (1) “FOR” the election of the five persons named as nominees under “Election of Directors;” (2) “FOR” the proposal to amend the 2003 Plan; (3) “FOR” the proposal to amend the 2007 Plan; (4) “FOR” the proposal to amend the Certificate of Incorporation to effect a reverse stock split; and (5) “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm of the Company for the fiscal year ending December 31, 2009.

 

What does it mean if I receive more than one proxy card?

 

If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares are voted.

 

Can I change my vote after submitting my proxy?

 

Yes. You can revoke your proxy at any time before the final vote at the meeting. You may revoke your proxy in any one of three ways:

 

 

How are votes counted?

 

Votes will be counted by the inspector of election appointed for the meeting, who will separately count “FOR” and “AGAINST” votes, abstentions and broker non-votes. Abstentions will be counted towards a quorum and the vote total for each Proposal and will have the same effect as “AGAINST” votes. Broker non-votes will be counted toward a quorum and depending on the Proposal either will have the same effect as an “AGAINST” vote on the Proposal or will have no effect. Please see the more detailed description of the effect

of broker non-votes on specific Proposals in the answer to “How many votes are needed to approve each proposal?” below.

 

If your shares are held by your broker as your nominee (that is, in “street name”) and you do not give instructions as to how to vote your shares, your broker can vote your shares with respect to “discretionary” items but not with respect to “non-discretionary” items. Discretionary items are proposals considered routine under the rules of the NASDAQ Stock Market and on which your broker may vote shares held in street name in the absence of your voting instructions. On non-discretionary items for which you do not give your broker instructions, the shares will be treated as broker non-votes. Each of the proposals to (i) approve the amendment and restatement of the 2003 Plan (Proposal No. 2), (ii) approve the amendment and restatement of the 2007 Plan (Proposal No. 3) and (iii) approve the amendment to the Certificate of Incorporation to effect a reverse stock split (Proposal No. 4) will be considered a non-discretionary item.

 

How many votes are needed to approve each proposal?

 

 

What is the quorum requirement?

 

A quorum of shareholders is necessary to hold a valid meeting. A quorum will be present if at least a majority of the shares outstanding and entitled to vote as of the record date are represented by shareholders present at the meeting or by proxy. On [April 3, 2009], the record date, there were [81,556,246] shares outstanding and entitled to vote. As a result, [40,778,124] of these shares must be represented by shareholders present at the meeting or by proxy to have a quorum.

 

Your shares will be counted towards the quorum if you submit a valid proxy vote or vote at the meeting. Abstentions and broker non-votes will also be counted towards the quorum requirement. If there is no quorum, a majority of the votes present at the meeting may adjourn the meeting to another date.

 

How does MatlinPatterson FA Acquisition LLC’s ownership of the Company’s shares of common stock affect votes cast in connection with the Annual Meeting?

 

As of the record date, MatlinPatterson FA Acquisition LLC (“MatlinPatterson”) held approximately 43,093,261 shares of common stock, representing approximately 54% of the voting power of the Company. As a result, regardless of the vote of any other shareholder of the Company, MatlinPatterson has control over the vote relating to the election of directors, approval of the amendment and restatement of the 2003 Plan,

approval of the amendment and restatement of the 2007 Plan, approval of the amendment to the Certificate of Incorporation to effect a reverse stock split, and the ratification of the Company’s independent registered public accounting firm (i.e., Proposal Nos. 1 through 5).

 

How can I find out the results of the voting at the Annual Meeting?

 

Preliminary voting results will be announced at the Annual Meeting and announced promptly following the Annual Meeting in a press release and current report on Form 8-K. Final voting results will be published in our quarterly report on Form 10-Q for the second quarter of 2009 that we are required to file with the Securities and Exchange Commission (the “SEC”) by August 14, 2009.

 

Who is paying for this proxy solicitation?

 

We will pay for the entire cost of soliciting proxies. In addition to these mailed proxy materials, our directors, officers and other employees may also solicit proxies in person, by telephone or by other means of communication. Directors, officers and other employees will not be paid any additional compensation for soliciting proxies. We may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.

 

When are shareholder proposals due for next year’s annual meeting?

 

For a shareholder proposal to be included in our proxy statement and form of proxy for the 2010 annual meeting of shareholders, such shareholder proposal must be submitted in writing to the attention of the Secretary of the Company at 12 East 49th Street, 31st Floor, New York, NY 10017. We must receive the proposal between [February 13, 2010] and [March 5, 2010], which is not less than 70 days but not more than 90 days prior to the first anniversary of the Annual Meeting. Shareholders are advised to review our Bylaws, which contain additional requirements with respect to advance notice of shareholder proposals and director nominations. Our current Bylaws are available at the SEC’s website, www.sec.gov, or upon written request to Broadpoint Securities Group, Inc., 12 East 49th Street, 31st Floor, New York, NY 10017, Attn: Corporate Secretary.

 

Can I obtain copies of the proxy materials online?

 

The Company’s proxy materials, including this Proxy Statement, the Proxy Card, the Annual Report, and any amendments to the foregoing materials that are required to be furnished to shareholders, are available for you to review online at www.bpsg.com/proxy.

 

How can I obtain directions to the Annual Meeting site?

 

For directions to the Annual Meeting site, please visit the following website: www.bpsg.com/proxy.

 

This Proxy Statement is being furnished to the shareholders of Broadpoint in connection with the solicitation by the Board of Directors of proxies for use at the Annual Meeting to be held at 12 East 49th Street, 31st Floor, New York, NY 10017 on [May 14, 2009] at 10:00 a.m., local time, and any postponements or adjournments thereof. The mailing address of the principal office of the Company is 12 East 49th Street, 31st Floor, New York, NY 10017 and its telephone number is (212) 273-7100.

 

At the Annual Meeting, the shareholders of the Company will be asked (1) to elect the five persons named as nominees under “Election of Directors;” (2) to consider and act upon a proposal to approve the amendment and restatement of the 2003 Plan; (3) to consider and act upon a proposal to approve the amendment and restatement of the 2007 Plan; (4) to consider and act upon a proposal to amend the Certificate of Incorporation to effect a reverse stock split; and (5) to consider and act upon a proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent auditors of the Company for the fiscal year ending December 31, 2009.

 

Proxy Solicitation

 

This Proxy Statement and the enclosed form of proxy are expected to be mailed on or about April [  ], 2009. All expenses of the Company in connection with this solicitation of proxies will be borne by the Company. Proxies are being solicited by the Board of Directors. 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.

 

Voting by Mail, Internet or Telephone

 

Shareholders who cannot attend the Annual Meeting in person can be represented by proxy. Most shareholders have a choice of voting over the Internet, using a toll-free telephone number or completing the proxy card in the form enclosed and mailing it in the envelope provided. Please refer to your proxy card or the information forwarded by your bank, broker or other nominee to see which options are available to you.

 

A proxy may be revoked at any time before it is exercised by giving notice of revocation to the Secretary of the Company, by executing a later-dated proxy (including an Internet or telephone vote) or by attending and voting in person at the Annual Meeting. The execution of a proxy will not affect a shareholder’s right to attend the Annual Meeting and vote in person, but attendance at the Annual Meeting will not, by itself, revoke a proxy. Proxies properly completed and received prior to the Annual Meeting and not revoked will be voted at the Annual Meeting.

 

Proxies will be voted as specified or, if no direction is indicated on a proxy, will be voted (1) “FOR” the election of the five persons named as nominees under “Election of Directors;” (2) “FOR” the proposal to approve the amendment and restatement of the 2003 Plan; (3) “FOR” the proposal to approve the amendment and restatement of the 2007 Plan; (4) “FOR” the proposal to approve the amendment to the Certificate of Incorporation to effect a reverse stock split; and (5) “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as independent auditors of the Company for the fiscal year ending December 31, 2009.

 

As to any other matter or business which may be brought before the Annual Meeting, including any adjournment(s) or postponement(s) thereof, a vote may be cast pursuant to the proxy in accordance with the judgment of the person or persons voting the same. As of the date hereof, the Board does not know of any such other matter or business.

The close of business on [April 3, 2009] has been fixed as the record date for the determination of shareholders entitled to vote at the Annual Meeting. [81,556,246] shares of common stock were outstanding as of the record date. Each shareholder will be entitled to cast one vote, in person or by proxy, for each share of common stock held. There are no other shares of voting stock of the Company outstanding. The presence, in person or by proxy, of the holders of at least a majority of the shares of common stock entitled to vote at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting. Abstentions and broker non-votes (as described below) and votes to “withhold authority” are counted in determining whether a quorum has been reached on a particular matter. Votes to withhold authority are treated the same as abstentions for purposes of the voting requirements described below.

 

If you hold your shares in “street name” through a broker or other nominee, your broker or nominee may not be permitted to exercise voting discretion with respect to certain matters. Thus, if you do not give your broker or nominee specific instructions, your shares may not be voted on those matters and will not be counted in determining the number of shares necessary for approval. Your broker will be permitted to exercise voting discretion with respect to Proposal No. 1 and Proposal No. 5. Your broker will not be permitted to exercise voting discretion with respect to Proposal No. 2, Proposal No. 3 and Proposal No. 4.

 

You can cast one vote for each share of the Company’s common stock you own. The proposals require different percentages of votes in order to approve them:

 

 

The Board unanimously recommends that the shareholders vote “FOR” (1) the election of the five persons named as nominees under “Election of Directors;” (2) the proposal to approve the amendment and restatement of the Broadpoint Securities Group, Inc. 2003 Non-Employee Directors Stock Plan; (3) the proposal to approve the amendment and restatement of the Broadpoint Securities Group, Inc. 2007 Incentive Compensation Plan; (4) the proposal to approve the amendment to the Company’s certificate of incorporation to effect a reverse stock split; and (5) the ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm of the Company for the fiscal year ending December 31, 2009.

PROPOSAL NO. 1

ELECTION OF DIRECTORS

 

The Bylaws of the Company provide that the Board shall consist of no more than 15 directors (nor less than the minimum number required by law), which shall be elected in three classes, with each class having a three year term. The Board currently consists of nine directors. Five nominees for director are to be elected as directors at this Annual Meeting, one of which is being elected as a Class I director, three of which are being elected as Class II directors and one of which is being elected as a Class III director. The term of the Class I director will expire at the annual meeting of shareholders in 2011. The Class I nominee is Robert A. Gerard, who was appointed to the Board on April 16, 2009 following the resignation of George C. McNamee, a Class I director, effective as of such date. The term of each Class II director will expire at the annual meeting of shareholders in 2012. The Class II nominees are Lee Fensterstock, Eric Gleacher and Christopher R. Pechock. The term of Dale Kutnick, a Class II director, expires at this Annual Meeting and the Board has chosen not to nominate him for re-election. The term of the Class III nominee will expire at the annual meeting of shareholders in 2010. The Class III nominee is Victor Mandel, who was appointed to the Board in October 2008. The Board has nominated each of the nominees for election as directors and recommends that shareholders vote FOR the election of these nominees.

 

If the enclosed proxy card is duly executed and received in time for the Annual Meeting, and if no contrary specification is made as provided therein, it will be voted in favor of the election of persons nominated as directors by the Board.

 

Each of the nominees has consented to serve as a director if elected. Should any nominee for director become unable or unwilling to accept election, proxies will be voted for a nominee selected by the Board, or the size of the Board may be reduced accordingly. The Board has no reason to believe that any of the nominees will be unable or unwilling to serve if elected to office. Any vacancy occurring during the term of office of any director may be filled by the remaining directors for a term expiring at the next meeting of shareholders at which the election of directors is in the regular order of business. Other than Mr. Gleacher, each of the nominees is presently a director of the Company.

 

Mr. Gleacher has been nominated by the Company in connection with the pending transaction between the Company and Gleacher Partners LLC and other related entities (the “Gleacher Transaction”). Under the agreement between the parties, the Company agreed to appoint Mr. Gleacher to its Board of Directors and designate him Chairman of the Board of Directors, subject to and effective at the time of the closing of the Gleacher Transaction, and to not take any action to remove Mr. Gleacher as a director for so long as he is employed under the employment agreement he and the Company will enter into as of the closing of the Gleacher Transaction. However, the nomination of Mr. Gleacher by the Board is independent of and not contingent on the Transaction, and if elected it will be effective regardless of whether the Gleacher Transaction is finally consummated. For further information regarding the Gleacher Transaction, see “Certain Relationships and Related Transactions.”

 

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 Annual Meeting.

 

Directors and Executive Officers of the Company

 

The Class I director nominated for election whose term will expire at the annual meeting of shareholders in 2011 is as follows:

 

ROBERT A. GERARD, age 64, is the General Partner and Investment Manager of GFP, L.P., a private investment partnership. Since 2004, Mr. Gerard has been Chairman of the Management Committee and Chief Executive Officer of Royal Street Communications, LLC, a licensee, developer and operator of wireless telecommunications systems in Los Angeles and Central Florida. From 1974 to 1977, Mr. Gerard served in the United States Department of the Treasury, completing his service as Assistant Secretary for Capital Markets and Debt Management. From 1977 until his retirement in 1991, he held senior executive

positions with the investment banking firms Morgan Stanley & Co., Dillon Read & Co. and Bear Stearns. Mr. Gerard is a member of the Board of Directors of H&R Block, Inc., serving as Chairman of the Governance and Nominating Committee and a member of the Finance Committee of such board. Mr. Gerard is Chair of the Executive Compensation Committee and a member of the Audit Committee. Mr. Gerard has been a director of the Company since April 16, 2009.

 

The Board recommends a vote “FOR” the Class I director nominee.

 

The Class II directors nominated for election whose terms will expire at the annual meeting of shareholders in 2012 are as follows:

 

LEE FENSTERSTOCK, age 61, has been the Chairman of the Board and Chief Executive Officer of the Company, as well as of Broadpoint Capital, Inc., since September 21, 2007. Prior to joining the Company, Mr. Fensterstock had extensive securities industry experience, including as President and Chief Operating Officer of Gruntal & Co., a regional broker dealer, and earlier as Executive Vice President, Capital Markets for PaineWebber, responsible for PaineWebber’s sales and trading business worldwide. He also served as a member of the Board of Directors of PaineWebber Inc. In February 2001, Mr. Fensterstock founded and was Chairman and Co-Chief Executive Officer of Bonds Direct Securities LLC, a market maker in investment grade fixed income instruments for institutional investors, until its sale to Jefferies Group. Thereafter, from October 2004 until March 2007, Mr. Fensterstock was a Managing Director at Jefferies & Co., co-heading its fixed income division. From May 1, 2007 until June 30, 2007, Mr. Fensterstock served as a consultant to MatlinPatterson Global Advisors LLC. From July 2007 through September 21, 2007, Mr. Fensterstock served as a consultant to the Company. Mr. Fensterstock received a BA from Queens College and an MBA from the University of Rochester.

 

ERIC GLEACHER, age 68, is Chairman of Gleacher Partners LLC, which he founded in 1990. Previously, Mr. Gleacher founded the M&A department at Lehman Brothers in 1978 and headed global M&A at Morgan Stanley from 1985 to 1990. Mr. Gleacher is Chairman of the Institute for Sports Medicine at the Hospital for Special Surgery in New York, Chairman of the Ransome Scholarship Trust for St. Andrews University in St. Andrews, Scotland, and a member of the Board of Trustees of Northwestern University. Mr. Gleacher received an MBA from The University of Chicago and a BA from Northwestern University and served as a U.S. Marine infantry officer in the 1960s.

 

CHRISTOPHER R. PECHOCK, age 44, has been active in the distressed securities markets for over 15 years. He has been a partner at MatlinPatterson Global Advisors LLC since its inception in July 2002. Prior to July 2002, Mr. Pechock was a member of Credit Suisse’s Distressed Group which he joined in 1999. Before joining Credit Suisse, Mr. Pechock was a Portfolio Manager and Research Analyst in distressed securities at Turnberry Capital Management, L.P. (1997-1999), a Portfolio Manager in distressed securities and special situations at Eos Partners, L.P. (1996-1997), a Vice President and high yield analyst at PaineWebber Inc. (1993-1996) and an analyst in risk arbitrage at Wortheim Schroder & Co., Incorporated (1987-1991). Mr. Pechock holds an MBA from Columbia University Graduate School of Business (1993) and a BA in Economics from the University of Pennsylvania (1987). Mr. Pechock serves on behalf of MatlinPatterson’s Fund I on the Board of Goss International. Mr. Pechock serves on behalf of MatlinPatterson’s Fund III on the Board of XL Health. He previously represented Fund I on the Boards of COMSYS IT, Compass Aerospace and Huntsman Corporation. Mr. Pechock is Chair of the Executive Compensation Committee and a member of the Committee on Directors and Corporate Governance. Mr. Pechock has been a director of the Company since September 2007.

 

The Board recommends a vote “FOR” each of the Class II director nominees.

 

The Class III director nominated for election whose term will expire at the annual meeting of shareholders in 2010 is as follows:

 

VICTOR MANDEL, age 44, is the founder and managing member of Criterion Capital Management, an investment company established in 2001. From 1999 to 2000, Mr. Mandel was Executive Vice President, Finance and Development of Snyder Communications, Inc., with operating responsibility for its publicly-traded division, Circle.com. Prior to Snyder Communications, Mr. Mandel was a Vice President

in the Investment Research department at Goldman Sachs & Co. Mr. Mandel is a member of the Audit Committee and the Committee on Directors and Corporate Governance, and has been a director of the Company since October 2008.

 

The Board recommends a vote “FOR” the Class III director nominee.

 

The Class III directors whose term will expire at the annual meeting of shareholders in 2010 are as follows:

 

PETER J. MCNIERNEY, age 43, is President and Chief Operating Officer of the Company and Broadpoint Capital, Inc. He joined Broadpoint Capital, Inc. in 2002 as the Director of Investment Banking, and served as President and Chief Executive Officer of the Company and Broadpoint Capital, Inc. from June 2006 until September 2007. Prior to joining Broadpoint Capital, Inc., Mr. McNierney was a Managing Director of the Healthcare and Communications Services groups at Robertson Stephens. Prior to that, Mr. McNierney was a Vice President in the Healthcare Group at Smith Barney. Mr. McNierney received a BA and a JD/MBA from the University of Texas at Austin. Mr. McNierney has been a director of the Company since June 2006.

 

FRANK PLIMPTON, age 55, became a director of the Company on September 21, 2007. Mr. Plimpton is also a Director of NorthernStar Natural Gas, Inc. and Renewable BioFuels, LLC. Mr. Plimpton served as a partner of MatlinPatterson Global Advisors LLC from its inception in July 2002 through 2008. Mr. Plimpton has over 28 years of experience in reorganizations, investment banking and investing. Prior to July 2002, Mr. Plimpton was a member of the Distressed Securities Group at Credit Suisse First Boston. Mr. Plimpton holds a BA in Applied Mathematics and Economics from Harvard College (cum laude, 1976). Mr. Plimpton received a law degree from the University of Chicago Law School (1981), and an MBA (1980) from the University of Chicago Graduate School of Business. Mr. Plimpton is Chair of the Committee on Directors and Corporate Governance and a member of the Executive Compensation Committee.

 

The Class I directors whose term will expire at the annual meeting of shareholders in 2011 are as follows:

 

MARK R. PATTERSON, age 57, is the Chairman of MatlinPatterson Global Advisors LLC which he co-founded in July 2002. Mr. Patterson has over 30 years of financial markets experience, principally in Leveraged Finance, at Credit Suisse (where he was Vice Chairman from 2000 to 2002), Scully Brothers & Foss L.P., Salomon Brothers Inc., and Bankers Trust Company. Mr. Patterson holds degrees in law (BA, 1972) and economics (BA Honors, 1974) from South Africa’s Stellenbosch University and an MBA (with distinction, 1986) from New York University’s Stern School of Business. Mr. Patterson also serves on the Board of Directors of Allied World Assurance in Bermuda and on the Dean’s Executive Board of the NYU Stern School of Business. Mr. Patterson is fluent in Afrikaans. Mr. Patterson serves on behalf of MatlinPatterson’s Fund I on the board of Polymer Group, Inc. He previously represented MatlinPatterson’s Fund I on the Board of NRG Energy, Inc., Compass Aerospace, and Oxford Automotive, Inc. and MatlinPatterson’s Fund II on the Board of Polymer Group, Inc. Mr. Patterson has been a director of the Company since September 2007.

 

ROBERT S. YINGLING, age 47, is currently a consultant to technology companies. Previously, Mr. Yingling was Vice President and Chief Financial Officer of WRC Media Inc. from September 2004 to March 2008. Previously, he was Chief Financial Officer of Duncan Capital Group LLC, a New York City based merchant bank from March through July 2004. From March 2003 until February 2004, he was Director of Finance of Smiths Group plc, a diversified UK engineering company, in Pine Brook, NJ. Prior to that he was Chief Financial Officer of BigStar Entertainment, Inc., a New York City based on-line marketer of filmed entertainment, where he led their Initial Public Offering, and a manager in the Audit and Business Advisory Division of Arthur Andersen and Director of Finance at Standard Microsystems Corporation, a designer and manufacturer of integrated circuits and networking products, as well as Chief Financial Officer of GDC International, Inc., an importer, manufacturer and distributor of industrial wirecloth products. Mr. Yingling served as a director of SA International, which provides software

solutions for the sign making and digital printing industries from April 2004 through December 2008. Mr. Yingling received an MBA from the Columbia Business School and graduated from Lehigh University with a BS in Accounting. He is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants and the New York State Society of CPAs. Mr. Yingling is Chair of the Audit Committee and has been a director of the Company since September 2007.

 

The following executive officers do not serve as directors and are not nominated for election as directors:

 

PATRICIA A. ARCIERO-CRAIG, age 41, joined the Company in 1997. She has been General Counsel and Secretary of the Company and Broadpoint Capital, Inc. since 2007. From 2003 to 2007, Ms. Arciero-Craig served as Deputy General Counsel of Broadpoint Capital and, prior to 2003, she served as Associate General Counsel. Prior to joining Broadpoint Capital in 1997, she was an attorney with the law firm of Harris Beach PLLC, where she practiced in the fields of commercial litigation, bankruptcy and restructuring. Ms. Arciero-Craig received a JD from Albany Law School of Union University and a Bachelor of Arts degree from Fairfield University. Ms. Arciero-Craig is a member of various Securities Industry and Financial Markets Association committees.

 

ROBERT I. TURNER, age 56, has been the Chief Financial Officer of the Company since March 31, 2008. Mr. Turner has over 20 years of experience in the securities and financial services industries. From 1995 to 2003, Mr. Turner served as Executive Vice President, Chief Financial Officer and Treasurer of Knight Capital Group, Inc. (formerly known as Knight Trading Group, Inc.) a NASDAQ listed trade execution company for on-line broker-dealers. From 2003 to 2004, Mr. Turner was at Crown Financial Group, a publicly traded market maker, first as Chair of their Audit Committee and then as Vice Chairman, Chief Financial Officer and Treasurer. In 2005, Mr. Turner acted as a general contractor on a condominium project in Naples, Florida. From 2006 until recently, Mr. Turner worked in the commercial real estate and business brokerage industry with Coldwell Banker Commercial and in residential real estate with Downing Frye Realty. Prior to joining Knight Capital Group, Inc., Mr. Turner was a Corporate Vice President at PaineWebber Incorporated, serving in a variety of financial management positions in the fixed income, finance, merchant banking and commodities trading divisions and a Vice President at Citibank in the treasury and investment banking divisions. Mr. Turner practiced at the accounting firm of PriceWaterhouseCoopers, and is a Certified Public Accountant. Mr. Turner received his B.A. from the State University of New York at Binghamton and his M.S.B.A. from the University of Massachusetts at Amherst.

 

GOVERNANCE OF THE COMPANY

 

The Board of Directors held 13 meetings during the Company’s fiscal year ended December 31, 2008. The committees of the Board each held the number of meetings noted below in “Committees of the Board”. During 2008, each Director attended at least 85% of the total number of meetings of the Board (while he was a member) and 93% of the total number of meetings of committees of the Board on which he served. Directors are encouraged to attend the annual meeting of shareholders, and all of our directors attended last year’s meeting (either in person or via teleconference). The Board determined that each of Messrs. Gerard, Kutnick, Mandel and Yingling qualified as an “independent director” as defined in the NASDAQ Stock Market listing standards. Mr. Nesmith resigned from the Board effective October 14, 2008. Mr. McNamee resigned from the Board effective April 16, 2009. The term of Mr. Kutnick expires at this Annual Meeting and the Board has chosen not to nominate him for re-election.

 

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 and the current charters of each of the Committees listed below are available on the Company’s website (www.broadpointsecurities.com). The Company intends to post amendments to or waivers from its Code at this location on its website or report such amendments or waivers in a current report on Form 8-K filed with the SEC. On March 6, 2008, the Company reported in a current report on Form 8-K that, on March 3, 2008, the Board approved a one-time limited waiver under the Company’s insider trading policy (the “Trading Policy”), which is incorporated into the Code, to Mr. Fensterstock and certain other employees covered by the Trading Policy to acquire shares of the Company’s common

stock in connection with the Mast Private Placement. The waiver related to certain provisions of the Trading Policy which provide that certain designated employees, including Mr. Fensterstock, may not engage in transactions involving the Company’s securities during certain specified blackout periods. After due consideration and a review of the facts and circumstances, including a determination that the transaction in question did not present the opportunity for insider trading that the Trading Policy was intended to prevent, the Board believed that the waiver was appropriate in this limited case. For further information regarding the Mast Private Placement, see “Certain Relationships and Related Transactions.”

 

The Company has also adopted a procedure by which shareholders may send communications as defined within Item 407(f) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to one or more members of the Board of Directors by writing to such director(s) or to the whole Board of Directors in care of the Company’s Corporate Secretary at the following address: Broadpoint Securities Group, Inc., 12 East 49th Street, 31st Floor, New York, NY 10017, 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.

 

Controlled Company Status

 

Because MatlinPatterson controls more than 50% of the voting power of our common stock, we are a “controlled company” within the meaning of the Nasdaq Marketplace Rules. Under the Nasdaq Marketplace Rules, a controlled company is a company of which more than 50% of the voting power is held by an individual, a group or another company. Under such rules, a controlled company may elect not to comply with certain Nasdaq corporate governance requirements, including requirements that (1) a majority of the board of directors consist of independent directors, (2) compensation of officers be determined or recommended to the board of directors by a majority of its independent directors or by a compensation committee that is composed entirely of independent directors and (3) director nominees be selected or recommended by a majority of the independent directors or by a nominating committee composed solely of independent directors. Because the Company is a controlled company, we have chosen to rely on this exemption to these Nasdaq corporate governance requirements.

 

Following the consummation of the Gleacher Transaction, we expect that MatlinPatterson will own less than 50% of the voting power of our common stock, and therefore the Company will no longer be a “controlled company” within the meaning of the Nasdaq Marketplace Rules. Therefore, in order to comply with applicable Nasdaq Marketplace Rules, the Company expects to take the following actions:

 

 

Following the consummation of the Gleacher Transaction, the Company will also comply (subject to the applicable phase-in period) with the Nasdaq Marketplace Rules requiring that (1) compensation of officers be determined or recommended to the board of directors by a majority of its independent directors or by a compensation committee that is composed entirely of independent directors and (2) director nominees be selected or recommended by a majority of the independent directors or by a nominating committee composed solely of independent directors.

Committees of the Board

 

The Board of Directors has three standing committees: the Audit Committee, the Executive Compensation Committee and the Committee on Directors and Corporate Governance.

 

The Audit Committee.  The Audit Committee operates pursuant to a written charter that the Committee and the Board reviews each year to assess its adequacy. The charter was amended and restated in December 2007. Among the primary purposes of the Audit Committee are assisting the Board of Directors in its oversight of the integrity of the Company’s financial reporting process; the Company’s systems of internal accounting and financial controls; the annual independent audit of the Company’s financial statements; the independent auditor’s qualifications and independence; the Company’s compliance with legal and regulatory requirements; and the Company’s management of market, credit, liquidity and other financial and operational risks. In addition, the Audit Committee decides whether to appoint, retain or terminate the Company’s independent auditors and pre-approves all audit, audit-related, tax and other services, if any, to be provided by the independent registered public accounting firm. The Audit Committee also prepares the Audit Committee report required by the rules of the SEC for inclusion in the Company’s annual proxy statement.

 

Until October 14, 2008, this committee was comprised of Mr. Yingling, who served as Chair, and Messrs. Kutnick and Nesmith. Mr. Nesmith resigned from the Board effective October 14, 2008. Currently, this committee is comprised of Messrs. Yingling (who serves as Chair), Gerard (as of April 16, 2009), Kutnick and Mandel. Each member of the Audit Committee is an “independent director” as defined in the NASDAQ Stock Market listing standards, and is independent within the meaning of Rule 10A-3 under the Exchange Act and the Company’s Corporate Governance Guidelines. The Board has determined that all Audit Committee members are financially literate in accordance with the NASDAQ Stock Market listing standards. Messrs. Yingling, Kutnick and Mandel are each 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. The Audit Committee met 15 times during 2008. The term of Mr. Kutnick expires at this Annual Meeting and the Board has chosen not to nominate him for re-election.

 

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) an attorney in the Legal Department of the Company, (iii) the Company’s toll free anonymous voice mailbox at 1-866-480-6132, or (iv) the Company’s anonymous drop-box, which may be accessed through the Company’s website (www.broadpointsecurities.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 “Audit Committee Report — Audit Committee Pre-Approval Policy.”

 

The Executive Compensation Committee.  Under its charter, the primary purposes of the Executive Compensation Committee is to discharge the responsibilities of the Board of Directors relating to compensation, including implementing and reviewing executive compensation plans, policies and programs to ensure the attraction and retention of executive officers in a reasonable and cost-effective manner, to motivate their performance in the achievement of the Company’s business objectives and to align the interest of executive officers with the long-term interests of the Company’s shareholders. The Committee develops and approves periodically a general compensation policy and salary structure for executive officers of the Company and reviews and approves base salaries and salary increases for, and perquisites offered to, executive officers. The Committee reviews and approves corporate goals and objectives relevant to the compensation of the Chief Executive Officer, evaluates the Chief Executive Officer’s performance in light of those goals and objectives and establishes the individual elements of the Chief Executive Officer’s total compensation based on this evaluation. The Committee also reviews and makes recommendations to the Board of Directors with respect to non-Chief Executive Officer compensation, incentive-compensation plans and equity-based plans and reviews and supervises, in coordination with management, the overall compensation policies of the Company. The Committee also administers the Company’s 1999 Long-Term Incentive Plan, 2001 Long-Term Incentive Plan,

Management Bonus Compensation Plan, Deferred Compensation Plan for Key Employees and the 2007 Plan. In addition, the Executive Compensation Committee also prepares its report regarding the Compensation Discussion and Analysis as required by the rules and regulations of the SEC. The Executive Compensation Committee may form, and delegate authority to, subcommittees when it deems appropriate. The Executive Compensation Committee has the authority to retain and terminate compensation consultants to assist in the evaluation of Director, Chief Executive Officer or executive officer compensation, including sole authority to approve the consultants’ fees and other retention terms. The Executive Compensation Committee also has authority to obtain advice and assistance from any officer or employee of the Company or any outside legal expert or other adviser.

 

The Executive Compensation Committee operates under a written charter adopted by the Board, which was amended and restated in December 2007. Currently, it is comprised of Mr. Gerard, who joined the Board and the Committee on April 16, 2009 and was elected Chair of the Committee on that date, Mr. Pechock and Mr. Plimpton. During the year 2008, the Committee met 11 times.

 

The Committee on Directors and Corporate Governance.  The Board established the Committee on Directors and Corporate Governance in fiscal year 2002. The Committee operates under a written charter adopted by the Board, which was amended and restated in December 2007. The Committee held 3 meetings during 2008. The primary purposes of the Committee are to assist the Board of Directors in developing and implementing policies and procedures intended to assure that the Board of Directors, including its standing committees, will be appropriately constituted and organized to meet its fiduciary obligations to the Company and its shareholders on an ongoing basis; and to develop and recommend to the Board of Directors for adoption corporate governance guidelines. Among its specific duties, the Committee determines criteria for service as director, reviews candidates and considers appropriate governance practices. The Committee also oversees the evaluation of the performance of the Board of Directors and Chief Executive Officer and annually reviews the Corporate Governance Guidelines, reporting to the Board any recommended changes. The Committee considers nominees for directors proposed by shareholders. To recommend a prospective nominee for the Committee’s consideration, shareholders should submit the candidate’s name and qualifications to the Company’s Corporate Secretary in writing to the following address: Broadpoint Securities Group, Inc., 12 East 49th Street, 31st Floor, New York, NY 10017, Attn: Corporate Secretary.

 

Currently, the Committee on Directors and Corporate Governance is comprised of Mr. Plimpton, who serves as Chair, Mr. Mandel and Mr. Pechock. 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 judgment, 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.

PROPOSAL NO. 2

APPROVAL OF AMENDMENT AND RESTATEMENT OF THE BROADPOINT SECURITIES GROUP, INC. 2003 NON-EMPLOYEE DIRECTORS STOCK PLAN

 

The 2003 Directors’ Stock Plan (the “2003 Plan”) was adopted by the Company’s shareholders on March 10, 2003. The 2003 Plan was amended and restated in October 2003 to give the Board discretion to grant awards in addition to the annual awards under the 2003 Plan. The 2003 Plan was further amended in October 2007 to reflect the change of the name of the Company, and such name change was approved by the Company’s shareholders in December 2007. The 2003 Plan was amended again in April 2009 to increase the number of shares of Common Stock available for the grant of awards from 100,000 to 2,000,000, to increase the individual annual dollar limit on grants of stock options and restricted stock under the 2003 Plan from $50,000 to $100,000, to permit Non-Employee Directors (as defined below) to elect whether their annual grants under the 2003 Plan will be made in the form of stock options or restricted stock, to permit Non-Employee Directors to elect to receive their annual cash Directors’ fees in the form of stock options or restricted stock (rather than just restricted stock), to permit the Board to determine the vesting schedule and term of stock options granted under the 2003 Plan, and to restate the 2003 Plan in its entirety, subject to the

approval of such amendment and restatement by the Company’s shareholders. Please note that if the proposal to amend our Certificate of Incorporation to effect a reverse stock split is approved by the Company’s shareholders and the Board effects such a reverse stock split, the number of shares available under the 2003 Plan and the terms of outstanding awards would be adjusted by the Board in accordance with the recapitalization provisions of the 2003 Plan.

 

Set forth below for the convenience of the Company’s shareholders is a summary description of the 2003 Plan, as amended and restated. This description is qualified in its entirety by reference to the actual amended and restated 2003 Plan, a copy of which is attached to the electronic copy of this Proxy Statement filed with the Securities and Exchange Commission and may be accessed from the Commission’s home page (www.sec.gov). In addition, copies of the 2003 Plan may be obtained upon written request to: Corporate Secretary, 12 East 49th Street, 31st Floor, New York, NY 10017.

 

Purpose

 

The purpose of the 2003 Plan is to promote the interests of the Company, its subsidiaries and its shareholders by further aligning the intentions of directors with those of the Company’s shareholders. To do this, the 2003 Plan offers equity-based opportunities providing directors with a proprietary interest in maximizing the growth, profitability and overall success of the Company.

 

Number of Shares

 

The maximum number of shares of Common Stock as to which awards could be granted may not exceed 2,000,000 shares. (Prior to the amendment of the 2003 Plan in April 2009, the maximum number of shares of Common Stock as to which awards could be granted could not exceed 100,000 shares.) The limits on the numbers of shares that can be issued are subject to proportional adjustment to reflect certain stock changes, such as stock dividends and stock splits.

 

If, however, any awards expire or terminate unexercised, the shares of Common Stock allocable to the unexercised or terminated portion of such award will again be available for awards under the 2003 Plan to the extent of such expiration or termination, subject to certain limitations under the 2003 Plan.

 

Administration and Eligibility

 

The administration, interpretation and operation of the 2003 Plan will be vested in the Board. The day-to-day administration of the 2003 Plan will be carried out by persons other than members of the Board designated by the Board. Each Director who is not an employee of the Company or any of its controlled subsidiaries (a “Non-Employee Director”) is eligible to receive awards under the 2003 Plan.

 

Awards Under the 2003 Plan

 

Both stock options and restricted shares may be awarded under the 2003 Plan. Each type of award is described below. All awards will be evidenced by an agreement approved by the Board.

 

Each person who is or becomes a Non-Employee Director on the date of an annual meeting of the Company’s shareholders and whose service will continue after such meeting will be eligible to receive a grant of restricted shares or options to purchase shares of Common Stock. The number of options or restricted shares to be awarded is within the discretion of the Board, except that no Non-Employee Director may receive an option worth more than $100,000 (as determined by the Board) or more than $100,000 of restricted shares. (Prior to the amendment of the 2003 Plan in April 2009, the individual annual dollar limit on each form of award was $50,000.) Currently, each such Non-Employee Director will receive either an award of stock options worth $50,000 (as determined by the Board) or an award of $50,000 of restricted shares. The Non-Employee Director may elect prior to the Annual Meeting whether such award will be made in the form of stock options or restricted shares. (Prior to the amendment of the 2003 Plan in April 2009, the Board determined the form of the award.) Shares of restricted stock will be subject to vesting conditions as set forth in the award agreement. The 2003 Plan also permits the Board to allow each Non-Employee Director to elect

to receive all or a portion of his or her annual cash retainer in the form of stock options or restricted stock. (Prior to the amendment of the 2003 Plan in April 2009, a Non-Employee could only elect to receive all or a portion of his or her annual cash retainer in the form of restricted stock.) The Board will determine the terms of such restricted shares. Note that if the Gleacher Transaction has not closed prior to the Annual Meeting, Mr. Gleacher would become a Non-Employee Director upon his election to the Board and would be eligible for awards under the 2003 Plan. Upon the closing of the Gleacher Transaction, however, Mr. Gleacher would become an employee of a subsidiary of the Company, would cease to be a Non-Employee Director and would receive the compensation and benefits provided under the Gleacher Employment Agreement. Accordingly, Mr. Gleacher has waived any awards for which he would be eligible under the 2003 Plan if the Gleacher Transaction has not closed prior to the Annual Meeting.

 

Stock Option Awards — The exercise price of all options granted under the 2003 Plan must equal the fair market value of a share of Common Stock on the date of grant. Each option will have a term of not more than ten years (as determined by the Board) and, unless otherwise determined by the Board in its sole discretion, will vest as to one-third of the shares on the first three anniversaries of the grant date. (Prior to the amendment of the 2003 Plan in April 2009, the Board did not have the discretion to determine the vesting schedule or term of stock options granted under the plan.) Payment for the underlying Common Stock upon exercise of an option may be made either in cash, by certified check, bank draft, or money order by delivery of shares of Common Stock already owned by the Non-Employee Director for at least six months, or, if permitted by the Board and applicable law, some other form of payment acceptable to the Board. Unless the Board establishes otherwise, the options granted under the 2003 Plan will not entitle a Non-Employee Director to receive dividend equivalents with respect to his or her shares subject to the option.

 

Restricted Share Awards — Restricted share awards are grants of Common Stock made to a Non-Employee Director subject to conditions established by the Board in the relevant award agreement. The restricted shares only become unrestricted in accordance with the conditions and vesting schedule, if any, provided in the relevant award agreement, but in no event will restricted shares vest prior to six months after the date of grant. A Non-Employee Director may not sell or otherwise dispose of restricted shares until the conditions imposed by the Board have been satisfied. Restricted share awards under the 2003 Plan may be granted alone or in addition to stock options. Restricted shares which vest will be reissued as unrestricted Common Stock. Each Non-Employee Director who receives a grant of restricted shares will have the right to receive all dividends and vote or execute proxies for such shares. Any stock dividends will be treated as additional restricted shares.

 

Forfeiture Upon Termination

 

If a person ceases to be a Non-Employee Director on the Board for any reason (other than death or total disability), any unexercisable stock option will be forfeited and cancelled by the Company. Such Non-Employee Director’s right to exercise any then-exercisable stock option will terminate 90 days after the date of such termination (but not beyond the stated term of such stock option). If a Non-Employee Director dies or becomes totally disabled, such director (or the estate or other legal representative of the Non-Employee Director), to the extent the stock options are exercisable immediately prior to the date of death or total disability, will be entitled to exercise any stock options at any time within the one-year period following such death or disability, but not beyond the stated term of such stock option.

 

If a person ceases to be a Non-Employee Director on the Board for any reason (other than death or total disability) prior to the lapsing of any applicable restriction period, or the satisfaction of any other restrictions, applicable to any grant of restricted shares, such restricted shares will be forfeited by such Non-Employee Director. In the case of death or total disability of a Non-Employee Director, he or she (or the estate or other legal representatives of the Non-Employee Director) will become 100% vested in any restricted shares as of the date of termination.

Change of Control

 

If a Change of Control, as defined in the 2003 Plan, occurs (i) all stock options then unexercised and outstanding will become fully vested and exercisable and (ii) all restrictions, terms and conditions applicable to restricted shares then outstanding will be deemed lapsed and satisfied, each as of the date of the Change of Control.

 

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 2003 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.

 

Mergers

 

If the Company enters into or is involved in any merger, reorganization or other business combination with any person or entity (a “Merger Event”) and the Company will be or is the surviving entity, the Board may, as of the date of such Merger Event, replace such stock options with substitute stock options in respect of the shares of the surviving corporation on such terms and conditions, as to the number of shares, pricing and otherwise, which will substantially preserve the value, rights and benefits of any affected stock options granted hereunder as of the date of the consummation of the Merger Event. If any Merger Event occurs, the Company has the right, but not the obligation, to pay to each affected Non-Employee Director an amount in cash or certified check equal to the excess of the fair market value of the Common Stock underlying any unexercised stock options (whether then exercisable or not) over the aggregate exercise price of such unexercised stock options. If, in the case of a Merger Event in which the Company will not be, or is not, the surviving corporation, and the Company determines not to make the cash or certified check payment described above, the Company will compel and obligate, as a condition of the consummation of the Merger Event that the surviving entity grant substitute stock options in the manner described in the 2003 Plan. Upon receipt by any affected Non-Employee Director of any such substitute stock options (or payment) as a result of any such Merger Event, such Non-Employee Director’s affected stock options for which such substitute options (or payment) were received will thereupon be cancelled without the need for obtaining the consent of any such affected Non-Employee Director.

 

Amendment, Suspension or Termination of the 2003 Plan

 

The Board may suspend or terminate the 2003 Plan (or any portion thereof) at any time and may amend the 2003 Plan at any time and from time to time in such respects as the Board may deem advisable to ensure that any and all Awards conform to or otherwise reflect any change in applicable laws or regulations, or to permit the Company or the Non-Employee Directors to benefit from any change in applicable laws or regulations, or in any other respect the Board may deem to be in the best interests of the Company or any Subsidiary. No such amendment, suspension or termination will (x) materially adversely effect the rights of any Non-Employee Director under any outstanding Stock Options or Restricted Share grants, without the consent of such Non-Employee Director or (y) be effective without shareholder approval if such approval is required to comply with any applicable law or stock exchange rule (such as increasing the number of shares of Common Stock that may be issued under the 2003 Plan.

Certain Federal Income Tax Consequences of the 2003 Plan

 

The following is a brief and general summary of some United States federal income tax consequences applicable to the 2003 Plan. The summary does not reflect any provisions of the income tax laws of any state, local or foreign taxing jurisdiction. The tax consequences of events and transactions under the 2007 Plan depend upon various factors, including an individual’s own tax status.

 

Nonqualified Stock Options — The stock options granted under the 2003 Plan are non-qualified options not intended to constitute incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). A Non-Employee Director will not realize taxable income at the time a nonqualified option is granted if the exercise price is equal to the fair market value of a Common Share on the date of grant. When a Non-Employee Director exercises a nonqualified option and receives shares of Common Stock that are not subject to restrictions, the Non-Employee Director generally will realize taxable ordinary income equal to the difference between the exercise price and the fair market value of the shares of Common Stock on the date of exercise. The Company generally will be allowed a tax deduction in the taxable year in which the Non-Employee Director includes the amount in income.

 

The Non-Employee Director’s tax basis in the shares of Common Stock, for capital gains purposes, upon subsequent disposition of such shares normally will be equal to their fair market value on the date taxable compensation is recognized. Any gain in excess of the ordinary income upon the subsequent sale of the shares of Common Stock is taxable as capital gain income, with the applicable tax rate depending upon, among other things, how long the shares of Common Stock were held following exercise.

 

Payment of Exercise Price with Shares of Common Stock — Special federal income tax rules apply to the payment of the exercise price of an option with shares of Common Stock previously acquired by the Non-Employee Director, whether through the exercise of an option or otherwise. These rules are generally considered to allow for the transfer of such shares in payment of the exercise price without recognition of gain or loss on the shares of Stock transferred, and the carryover of the Non-Employee Director’s tax basis in such transferred shares to the same number of shares of Common Stock received upon exercise. The federal income tax rules relating to the exercise of an option with previously acquired shares of Common Stock are complex and subject to interpretation, and each Non-Employee Director should consult with his or her tax advisor as to the tax effects before he or she engages in any such transaction.

 

Restricted Stock — A Non-Employee Director generally does not realize taxable ordinary income as a result of receiving a restricted stock grant, and the Company is not entitled to a deduction for federal income tax purposes at the time of the grant, provided that the shares of Common Stock are not transferable and are subject to restrictions constituting a “substantial risk of forfeiture.” When the restrictions lapse, the Non-Employee Director will be deemed to have received taxable ordinary income equal to the fair market value of the shares of Common Stock at the time of lapse. An amount equal to the compensation included in the Non-Employee Director’s income normally will generally be deductible by the Company in the taxable year of inclusion. The Non-Employee Director’s tax basis in the shares of Common Stock normally will be equal to the fair market value of such shares on the date the restrictions lapse. Any gain realized upon disposition of such shares is taxable as capital gain income, with the applicable tax rate depending upon, among other things, how long such shares were held following the lapse of the restrictions.

 

Under certain circumstances, a Non-Employee Director may, within thirty days after transfer of the restricted shares of Common Stock, irrevocably elect under Section 83(b) of the Code to include in the year in which such restricted shares are transferred as gross income, the fair market value of such shares, which is determined as of the date of transfer and without regard to any restriction other than a restriction that by its terms will never lapse. A copy of this election must be provided to the Company. The basis of such shares will be equal to the amount included in income. The holding period for capital gains purposes begins when the shares of Common Stock are transferred to the Non-Employee Director. If such shares are forfeited before the restrictions lapse, the forfeiture will be treated as a sale or exchange and no tax deduction will be allowed for the amount included in income as a result of the original election.

For federal income tax purposes, unless the Non-Employee Director elects to be taxed at the time the restricted shares of Common Stock are transferred, dividends paid while such shares remain subject to restrictions creating a “substantial risk of forfeiture” will be taxed as compensation and will be deductible by the Company. Income taxes will be withheld by the Company as though cash compensation had been paid. If the Non-Employee Director elects to be taxed at the time such shares are transferred, dividends paid on such restricted shares will be taxed as dividend income and will not be deductible by the Company or included in the Non-Employee Director’s compensation income from the Company.

 

If a Non-Employee Director makes a timely election to receive additional options in lieu of a portion of his or her annual cash retainer, there will be no income realized upon grant of the options. The income tax consequences upon the exercise of such options will be as described above.

 

New Benefits Under the 2003 Plan

 

Each person who is or becomes a Non-Employee Director on the date of an Annual Meeting of the Company’s shareholders and whose service will continue after such meeting will be eligible to receive a grant of restricted shares or options to purchase shares of Common Stock. Under the 2003 Plan as amended and restated, each person who is or becomes a Non-Employee Director on the date of the Annual Meeting and whose service will continue after such meeting will receive an award of stock options worth $50,000 or $50,000 of restricted shares (as elected by the Non-Employee Director). Because Non-Employee Directors have the opportunity to elect to exchange a portion of their annual cash retainer for restricted shares or, under the amendment, stock options, the remaining benefits that may be received by Non-Employee Directors under the 2003 Plan are not determinable. No awards have yet been made under the 2003 Plan with respect to the additional shares of Common Stock that would be available upon the approval of the amendment of the 2003 Plan by the Company’s shareholders.

 

Required Approval

 

The affirmative vote of a majority of the votes cast at the Annual Meeting and entitled to vote thereat is required for the approval of the amendment and restatement of the 2003 Plan. The Board has unanimously voted in favor of the amendment and restatement of the 2003 Plan.

 

The Board recommends that the Company’s shareholders vote “FOR” the amendment and restatement of the Broadpoint Securities Group, Inc. 2003 Non-Employee Directors Stock Plan.

PROPOSAL NO. 3

APPROVAL OF AMENDMENT AND RESTATEMENT OF THE BROADPOINT SECURITIES GROUP, INC. 2007 INCENTIVE COMPENSATION PLAN

 

The 2007 Incentive Compensation Plan (the “2007 Plan”) was adopted by the Company’s shareholders on September 21, 2007. The 2007 Plan was amended in October 2007 to reflect the change of the name of the Company, and such name change was approved by the Company’s shareholders in December 2007. The 2007 Plan was amended again in February 2008 to increase the number of shares of Common Stock available for the grant of awards, and such amendment was approved by the Company’s shareholders in June 2008. The 2007 Plan was further amended in April 2009 to increase the number of shares of Common Stock available for the grant of awards by 5,000,000 shares, to clarify other provisions of the 2007 Plan and to restate the 2007 Plan in its entirety, subject to the approval of such amendment and restatement by the Company’s shareholders. Please note that the Company is seeking the increased number of 5,000,000 shares under the 2007 Plan for use in the recruitment of new employees, whether in connection with acquisitions or otherwise. Please note also that if the proposal to amend our Certificate of Incorporation to effect a reverse stock split is approved by the Company’s shareholders and the Board effects such a reverse stock split, the number of shares available under the 2007 Plan and the terms of outstanding awards would be adjusted by the Board in accordance with the recapitalization provisions of the 2007 Plan.

Set forth below for the convenience of the Company’s shareholders is a summary description of the 2007 Plan, as amended and restated. This description is qualified in its entirety by reference to the actual amended and restated 2007 Plan, a copy of which is attached to the electronic copy of this Proxy Statement filed with the Securities and Exchange Commission and may be accessed from the Commission’s home page (www.sec.gov). In addition, copies of the 2007 Plan may be obtained upon written request to: Corporate Secretary, 12 East 49th Street, 31st Floor, New York, NY 10017.

 

Purpose

 

The 2007 Plan is intended to qualify certain compensation awarded under the 2007 Plan as “performance-based” compensation under Section 162(m) of the Code, to the extent deemed appropriate by the Compensation Committee which administers the 2007 Plan. Section 162(m) generally eliminates a federal income tax deduction for annual compensation in excess of one million dollars paid by the Company to any officer named in the Summary Compensation Table unless that compensation is paid on account of attainment of one or more “performance-based” goals. One requirement for compensation to be performance-based is that the compensation is paid pursuant to a plan that the shareholders have approved.

 

The 2007 Plan is designed to advance the interests of the Company by providing a means through which incentive awards can be granted to officers, other employees and persons who provide services to the Company and its subsidiaries. By making grants of awards under this plan, the Company can attract, retain and reward such persons and, by linking compensation measures to performance, the Company can provide incentives for the creation of shareholder value. In addition, the interests of the Company’s shareholders and the award recipients can be more closely aligned by giving the recipients an interest in the long-term success of the Company.

 

Number of Shares

 

Awards may be made under the 2007 Plan if, at the time of grant, the aggregate number of shares subject to outstanding awards under the 2007 Plan and outstanding awards under the First Albany Restricted Stock Inducement Plan, the 1989 Stock Incentive Plan, 1999 Long-Term Incentive Plan, and the 2001 Long-Term Incentive Plan (the “Preexisting Plans”) plus the number of shares subject to the award being granted under the 2007 Plan do not exceed the sum of 15,675,000 shares (10,675,000 shares prior to the amendment adopted in April 2009) and 25% of the number of shares issued and outstanding immediately prior to the grant of such award. The 2007 Plan provides that no further awards will be granted under the Preexisting Plans. There is a maximum of 2.5 million shares that may be subject to incentive stock options granted under the 2007 Plan.

 

Administration

 

Authority of the Committee — The 2007 Plan is administered by the Executive Compensation Committee. The Executive Compensation Committee has the full and final authority to, among other matters, select the persons to whom awards may be granted; determine the type(s) of awards that may be granted under the 2007 Plan to each participant; determine under what circumstances awards may be settled or the exercise price of an award may be paid in cash, shares, other awards or other property, or an award may be cancelled, forfeited or surrendered; and to construe and interpret the provisions of the 2007 Plan and outstanding awards.

 

Manner of Exercise of Committee Authority — Any action taken by the Executive Compensation Committee with respect to the 2007 Plan will be final, conclusive, and binding on all persons, including the Company, its subsidiaries, participants, and any person claiming any rights under the 2007 Plan from or through any participant or shareholder. In addition, the express grant of specific authority does not indicate a limitation of power in areas not expressly granted.

 

The Executive Compensation Committee may delegate to officers or managers of the Company or its subsidiaries, the authority to perform functions designated by the Executive Compensation Committee, to the extent that such delegation is permitted under applicable laws. In addition, the Board of directors may perform any function of the Executive Compensation Committee in order to ensure that transactions under the 2007 Plan are exempt under Rule 16b-3.

Eligibility

 

Persons eligible to receive awards under the 2007 Plan include (a) executive officers, other officers or employees of the Company and its subsidiaries, including directors, (b) any person who provides substantial personal services to the Company or any subsidiary not solely in the capacity as a director, and (c) any person who has agreed to become an employee of the Company or any subsidiary provided that such person cannot receive any payment or exercise any right relating to an award until such person has begun employment.

 

Awards under the 2007 Plan

 

Options — An option is the right to acquire shares of Common Stock at a fixed price for a fixed period of time. Under the 2007 Plan, the Executive Compensation Committee is authorized to grant options to purchase shares to participants under the following terms. The exercise price of the option will be determined by the Executive Compensation Committee, however, the exercise price may not be below the fair market value (on the date of grant) of the shares covered by the option. The Executive Compensation Committee will determine the time an option may be exercised and method by which a exercise price may be deemed paid, as well as the form of such payment. The Executive Compensation Committee will determine at the time of grant the terms of vesting and forfeiture of the options. Options granted under the 2007 Plan may be nonqualified stock options or options that qualify are “incentive stock options” under Section 422 of the Code.

 

Stock Appreciation Rights — SARs are awards that give a participant the right to receive payment from the Company in an amount equal to (1) the excess of the fair market value of a share on the date of exercise over the exercise price, multiplied by (2) the number of shares with respect to which the award is exercised. The grant price of the SAR will not be less than the fair market value of one share on the date of grant. The Executive Compensation Committee determines the terms and conditions of each SAR, including time(s) when an SAR may exercised, method of settlement, and method of delivery. The Executive Compensation Committee will determine at the time of grant the terms of vesting and forfeiture of the SARs.

 

Restricted Stock — Restricted stock awards are shares of the Company’s Common Stock which vest in accordance with terms established by the Executive Compensation Committee in its discretion. Restricted stock will be subject to restrictions on transferability and other restrictions that the Executive Compensation Committee may impose. These restrictions may lapse separately or in combination as the Executive Compensation Committee may determine. Except as restricted under the terms of the 2007 Plan and any award agreement regarding restricted stock, a participant will have all the rights of a shareholder including the right to vote restricted stock or the right to receive dividends. Except as otherwise determined by the Executive Compensation Committee, upon termination of employment or service during the applicable restriction period, restricted stock will be forfeited and reacquired by the Company.

 

The Executive Compensation Committee may require that cash dividends paid on a share of restricted stock may be automatically reinvested in additional shares of restricted stock or applied to the purchase of additional awards under the 2007 Plan.

 

Deferred Stock and Restricted Stock Units — Deferred stock awards (also referred to as Restricted Stock Units) refer to rights to receive shares that will be delivered to participants at specified future dates. Shares will be issued at the expiration of the deferral or vesting period specified for an award by the Executive Compensation Committee. In addition the Executive Compensation Committee may impose restrictions that may lapse at the expiration date, an earlier specified date, or otherwise as the Executive Compensation Committee may determine. The Executive Compensation Committee, in its discretion, also may provide that an award will be settled in cash rather than shares.

 

Except as otherwise provided by the Executive Compensation Committee, upon termination of employment during the applicable deferral or vesting period or portion thereof to which forfeiture conditions apply, all deferred stock or restricted stock units that remain subject to such risk of forfeiture will be forfeited.

 

Bonus Shares and Awards in Lieu of Cash Obligations — The Executive Compensation Committee is authorized to grant shares as a bonus or grant shares in lieu of Company obligations to pay cash or other

awards under other 2007 plans or compensatory arrangements. These shares or awards will be subject to terms determined by the Executive Compensation Committee.

 

Other Stock-Based Awards — The Executive Compensation Committee is authorized to grant such other awards as may be denominated in, payable in, or otherwise based on the stock of the Company. These shares or awards will be subject to terms determined by the Executive Compensation Committee.

 

Deferred Compensation Awards — The Executive Compensation Committee is authorized to grant awards in lieu of cash compensation or upon the deferral of cash compensation payable by the Company, including cash amounts payable under other plans. Such awards may be granted at a discount related to the value of the Award in lieu of the deferred compensation.

 

Performance-Based Awards — The Executive Compensation Committee may establish performance goals for individual employees, groups of employees or the Company as a whole. Such goals may be based on: (1) earnings per share; (2) revenues; (3) cash flow; (4) cash flow return on investment; (5) return on net assets, return on assets, return on investment, return on capital, return on equity; profitability; (6) economic value created (as defined in the 2007 Plan); (7) operating margins or profit margins; (8) income or earnings before or after taxes; pretax earnings; pretax earnings before interest, depreciation and amortization; operating earnings; pretax operating earnings, before or after interest expense and before or after incentives, service fees, and extraordinary or special items; net income; (9) total shareholder return or stock price; (10) book value per share; (11) expense management; improvements in capital structure; working capital; costs; and (12) any of the above goals as compared to the performance of a published or special index deemed applicable by the Executive Compensation Committee including, but not limited to, the Standard & Poor’s 500 Stock Index or a group of comparator companies. It may make grants of performance-based awards contingent upon the attainment of such goals. Such awards may be settled in the form of cash, restricted stock or restricted stock units or a combination of cash and restricted stock or restricted stock units.

 

Annual Incentive Awards — The Executive Compensation Committee may grant annual incentive awards as an alternative to traditional cash bonuses. Executive Compensation Committee may establish performance goals for such awards based on the same types of business criteria as used for performance-based awards. Such awards may be settled in the form of cash, restricted stock or restricted stock units or a combination of cash and restricted stock or restricted stock units.

 

Annual Limits on Awards

 

In each calendar year, a participant in the 2007 Plan may be granted awards up to his or her Annual Limit, which consists of an Annual Share Award Limit, an Annual Performance Award Limit, and an Annual Incentive Award Limit. A participant’s Annual Share Award Limit (which applies to all awards valued by reference to shares at the date of grant, including performance-based awards valued in such manner), in any year during any part of which the participant is then eligible under the 2007 Plan, equals two million shares, plus the amount of the participant’s unused Annual Share Award Limit relating to the same type of awards as of the close of the previous year. A participant’s Annual Performance Award Limit (which applies to all performance-based awards not valued by reference to shares at the date of grant), in any year during any part of which the participant is then eligible under the 2007 Plan, equals $3.0 million, plus the amount of the Participant’s unused cash Annual Performance Award Limit as of the close of the previous year. Finally, a participant’s Annual Incentive Award Limit for a given fiscal year equals (i) in the case of the Chief Executive Officer or any other executive officer principally having Company-wide responsibilities, the greater of 25% of Company profits after taxes but before payment of bonuses to all employees or 10% of Company revenue, and (ii) in the case of an executive officer or other person principally having responsibilities for one or more specific business units, the greatest of 30% of the net income of such business unit(s), 10% of the revenues of such business unit(s), or 25% of the economic value created (as defined in the 2007 Plan) of such business unit(s). These per-person limitations on awards are each separate from one another.

New Plan Benefits

 

Although the granting of awards under the 2007 Plan is discretionary, the Company has entered into certain employment and non-compete and non-solicit agreements that will provide awards under the 2007 Plan as described below. You may also reference the Grants of Plan-Based Awards During Fiscal Year 2008 table on page    for an example of similar awards made in 2008. No awards have yet been made under the 2007 Plan with respect to the additional shares of Common Stock that would be available upon the approval of the amendment of the 2007 Plan by the Company’s shareholders.

 

Recapitalization Adjustments

 

In the event of any change in the number of outstanding shares by reason of any share dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares, repurchase, liquidation, dissolution or other corporate exchange, any large, special and non-recurring dividend or distribution to shareholders or similar corporate transaction, the Executive Compensation Committee may make such substitutions or adjustments to awards as it deems equitable to preserve, without enlarging, the rights of participants. Such substitutions or adjustments may include modifications as to (i) the number and kind of shares which may be delivered in connection with awards, (ii) the number and kind of shares by which annual per-person award limitations are measured, (iii) the number and kind of shares subject to or deliverable in respect of outstanding awards, and (iv) the exercise price, grant price, purchase price or form of payment relating to any award.

 

Notwithstanding the foregoing, without the prior approval of shareholders, the Executive Compensation Committee will not materially increase the number of shares to be issued under the 2007 Plan (other than to reflect a reorganization, stock split, merger, spinoff or similar transaction); make any material increase in benefits to participants, including repricing of outstanding options, or extend the duration of a plan.

 

Amendment, Suspension or Termination of the Plan

 

The Board may amend, suspend, discontinue or terminate the 2007 Plan without the consent of shareholders or participants, except that any amendment will be subject to the approval of the Company’s shareholders at or before the next annual meeting of shareholders for which the record date is after such Board action if such shareholder approval is required by any federal or state law or regulation or the rules of the NASDAQ Stock Market, and the Board may otherwise, in its discretion, determine to submit other such amendments to shareholders for approval; provided, however, that, without the consent of an affected participant, no such action may materially impair the rights of such participant under any award previously granted.

 

Certain Federal Income Tax Consequences of the Plan

 

The following is a brief and general summary of some United States federal income tax consequences applicable to the 2007 Plan. The summary does not reflect any provisions of the income tax laws of any state, local or foreign taxing jurisdiction. The tax consequences of events and transactions under the 2007 Plan depend upon various factors, including an individual’s own tax status.

 

Nonqualified Stock Options — A participant will not realize taxable income at the time a nonqualified option is granted if the exercise price is equal to the fair market value of a Common Share on the date of grant. When a participant exercises a nonqualified option and receives shares of Common Stock that are not subject to restrictions, the participant generally will realize taxable ordinary income equal to the difference between the exercise price and the fair market value of the shares of Common Stock on the date of exercise. The Company generally will be allowed a tax deduction in the taxable year in which the participant includes the amount in income.

 

The participant’s tax basis in the shares of Common Stock, for capital gains purposes, upon subsequent disposition of such shares normally will be equal to their fair market value on the date taxable compensation is recognized. Any gain in excess of the ordinary income upon the subsequent sale of the shares of Common

Stock is taxable as capital gain income, with the applicable tax rate depending upon, among other things, how long the shares of Common Stock were held following exercise.

 

Incentive Stock Options — A participant will not realize taxable income at the time an incentive stock option is granted. If a participant exercises an incentive stock option qualifying under Section 422 of the Code and (1) does not dispose of the shares of Common Stock within two years after the date of grant of the option nor within one year after the transfer of the shares of Common Stock to the participant upon the exercise of the option (referred to as the “Holding Periods”), and (2) is an employee of the Company or a subsidiary from the date of grant of the option until three months before the date of exercise (except for termination due to death or disability, discussed below), the participant generally will realize no taxable income as a result of the exercise. The Company generally will not be entitled to a deduction upon exercise of an incentive stock option, unless the participant disposes of the shares of Common Stock prior to expiration of the Holding Periods. If the participant disposes of the shares of Common Stock prior to the expiration of the Holding Periods, the disposition of the shares of Common Stock will be treated as a “disqualifying disposition” and the participant generally will realize taxable ordinary income equal to the lesser of (a) the fair market value of the shares of Common Stock on the date of exercise minus the exercise price and (b) the amount realized upon the disposition minus the exercise price.

 

If an incentive stock option is exercised more than three months after termination of the participant’s employment with the Company or a subsidiary or more than twelve months after the participant becomes permanently and totally disabled, the exercise will be treated as the exercise of a nonqualified stock option. If the participant dies while an active employee of the Company or a subsidiary or within three months after termination of employment, any exercise of the option prior to the termination of the option will be treated as the exercise of an incentive stock option, unless a shorter time period is provided in the award agreement. If the Holding Periods are satisfied and the option is exercised while the participant is an employee of the Company or a subsidiary or within the applicable time periods described above, the regular tax basis of the shares of Common Stock upon subsequent disposition normally will be the exercise price paid for the shares of Common Stock. Any gain will be treated as capital gain income.

 

For purposes of the “alternative minimum tax” that may apply to some participants, the exercise of an incentive stock option will generally be taxed in the same manner as the exercise of a nonqualified option. That is, alternative minimum taxable income will arise equal to the excess of the fair market value of the shares of Common Stock on the date of exercise over the exercise price. Special rules will apply in the case of disqualifying dispositions during the Holding Periods. The alternative minimum tax basis of the shares of Common Stock for capital gains purposes will be the fair market value of the shares of Common Stock on the date of exercise.

 

Payment of Exercise Price with Shares of Common Stock — Special federal income tax rules apply to the payment of the exercise price of an option with shares of Common Stock previously acquired by the participant, whether through the exercise of an option or otherwise. These rules are generally considered to allow for the transfer of such shares in payment of the exercise price without recognition of gain or loss on the shares of Stock transferred, and the carryover of the participant’s tax basis in such transferred shares to the same number of shares of Common Stock received upon exercise. The federal income tax rules relating to the exercise of an option with previously acquired shares of Common Stock are complex and subject to interpretation, and each participant should consult with his or her tax advisor as to the tax effects before he or she engages in any such transaction.

 

Stock Appreciation Rights — A participant will not generally realize taxable income at the time a stock appreciation right is granted. Upon settlement of a stock appreciation right, the participant will recognize as ordinary income the amount of cash received or, if the right is paid in shares of Common Stock, the fair market value of such shares at the time of payment. The Company generally will be allowed a tax deduction in the taxable year the participant includes the amount in income.

 

Restricted Stock — A participant generally does not realize taxable ordinary income as a result of receiving a restricted stock grant, and the Company is not entitled to a deduction for federal income tax purposes at the time of the grant, provided that the shares of Common Stock are not transferable and are

subject to restrictions constituting a “substantial risk of forfeiture.” When the restrictions lapse, the participant will be deemed to have received taxable ordinary income equal to the fair market value of the shares of Common Stock at the time of lapse. An amount equal to the compensation included in the participant’s income normally will generally be deductible by the Company in the taxable year of inclusion. The participant’s tax basis in the shares of Common Stock normally will be equal to the fair market value of such shares on the date the restrictions lapse. Any gain realized upon disposition of such shares is taxable as capital gain income, with the applicable tax rate depending upon, among other things, how long such shares were held following the lapse of the restrictions.

 

Under certain circumstances, a participant may, within thirty days after transfer of the restricted shares of Common Stock, irrevocably elect under section 83(b) of the Code to include in the year in which such restricted shares are transferred as gross income, the fair market value of such shares, which is determined as of the date of transfer and without regard to any restriction other than a restriction that by its terms will never lapse. A copy of this election must be provided to the Company. The basis of such shares will be equal to the amount included in income. The holding period for capital gains purposes begins when the shares of Common Stock are transferred to the participant. If such shares are forfeited before the restrictions lapse, the forfeiture will be treated as a sale or exchange and no tax deduction will be allowed for the amount included in income as a result of the original election.

 

For federal income tax purposes, unless the participant elects to be taxed at the time the restricted shares of Common Stock are transferred, dividends paid while such shares remain subject to restrictions creating a “substantial risk of forfeiture” will be taxed as compensation and will be deductible by the Company. Income taxes will be withheld by the Company as though cash compensation had been paid. If the participant elects to be taxed at the time such shares are transferred, dividends paid on such restricted shares will be taxed as dividend income and will not be deductible by the Company or included in the participant’s compensation income from the Company.

 

Deferred Stock Awards and Restricted Stock Units — Deferred stock awards and restricted stock units (and any dividend equivalent rights granted in connection therewith) are generally not subject to tax at the time of the award but are subject to ordinary income tax at the time of payment, whether paid in cash or shares of Common Stock. With respect to such awards, the Company generally will be allowed a tax deduction for the amount included in the taxable income of the participant in the taxable year of inclusion.

 

Section 409A of the Code — Certain types of awards under the 2007 Plan may constitute nonqualified deferred compensation for purposes of section 409A of the Code. Failure to comply with the requirements of section 409A of the Code may result in the imposition on the participant of a 20% additional income tax on amounts subject to awards under the 2007 Plan. While the Company intends that the terms of awards under the 2007 Plan will comply with the requirements of section 409A, because there remain a number of uncertainties in the interpretation of this new law, such compliance cannot be assured and the Company may deem it necessary to make amendments to the Plan and to awards outstanding under the 2007 Plan that are intended to comply with section 409A. Participants are advised to consult with their tax advisor.

 

Section 162(m) of the Code — Section 162(m) of the Code generally disallows the corporate tax deduction for certain compensation paid in excess of $1,000,000 annually to each of the chief executive officer and the four other most highly paid executive officers of publicly held companies. Awards that qualify as “performance-based compensation” are exempt from Section 162(m), thus allowing the Company the full federal tax deduction otherwise permitted for such compensation. If approved by the Company’s shareholders, the amended 2007 Plan will enable the Compensation Committee to grant awards that will be exempt from the deduction limits of Section 162(m).

 

Performance Targets — Performance-based awards and annual incentive awards under the 2007 Plan may only be paid if the performance targets for the performance period are attained. In addition, the Executive Compensation Committee, in its discretion, may decrease (but not increase) the amount awards even though the relevant performance targets have been attained. The Executive Compensation Committee will establish the performance targets for the performance period no later than 90 days after the beginning of the performance period. The performance targets may be based on one or more of the following business criteria:

(a) earnings, (b) revenues, (c) stock price, (d) earnings per share, (e) return on equity, (f) return on capital, (g) total shareholder return, (h) before or after tax profit margins, (i) book value per share, (j) expense management, (k) budget comparison, (l) improvements in capital structure and (m) the relative performance of the Company against a peer group of companies on any of the measures above. The attainment of performance targets may be used to determine the amount of an award, the vesting of an award, or both.

 

EQUITY COMPENSATION PLAN INFORMATION

 

Securities Authorized for Issuance under Equity Compensation Plans

 

The following table provides information as of December 31, 2008 with respect to shares of common stock of the Company that may be issued under the Company’s existing equity compensation plans.

 

 

 

 

 

Required Approval

 

The affirmative vote of a majority of the votes cast at the Annual Meeting and entitled to vote thereat is required for the approval of the amendment and restatement of the 2007 Plan. The Board has unanimously voted in favor of the amendment and restatement of the 2007 Plan.

 

The Board recommends that the Company’s shareholders vote “FOR” the amendment and restatement of the Broadpoint Securities Group, Inc. 2007 Incentive Compensation Plan.

PROPOSAL NO. 4

APPROVAL OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO EFFECT A REVERSE STOCK SPLIT

 

General

 

Our Board has declared advisable and approved, and is hereby soliciting shareholder approval of, an amendment to our Certificate of Incorporation to effect a reverse stock split at a ratio of between one-for-three and one-for-six in the form set forth in Appendix “C” to this Proxy Statement (the “Reverse Stock Split Amendment”). A vote for Proposal No. 4 will constitute approval of the Reverse Stock Split Amendment, which provides for the combination of any whole number of shares of common stock between and including three and six into one share of common stock, and will grant our Board the authority to select which ratio within that range to implement. If the shareholders approve this proposal, our Board will have the authority, but not the obligation, in its sole discretion, and without further action on the part of the shareholders, to select the reverse stock split ratio within the approved range and effect the reverse stock split by filing the Reverse Stock Split Amendment with the New York Department of State at any time after the approval of the Reverse Stock Split Amendment and prior to the close of business on [May 14, 2010] (the first anniversary of this Annual Meeting).

 

If the reverse stock split is implemented, the Reverse Stock Split Amendment would not change the number of authorized shares of our common stock or the par value of a share of common stock. Except for any changes as a result of the treatment of fractional shares, each shareholder will hold the same percentage of common stock outstanding immediately after the reverse stock split as such shareholder held immediately prior to the reverse stock split.

 

Our Board believes that reducing the number of shares of our common stock outstanding through the reverse stock split will proportionately increase the per share price of our common stock and make our shares more appealing to investment funds and other institutional investors. We also believe that our shareholders may benefit from a higher priced stock because of improved liquidity as a result of an increased interest from investment funds and other institutional investors and lower trading costs.

 

We believe that shareholder approval of a permissible reverse stock split ratio range (rather than an exact ratio) provides us with maximum flexibility to achieve the purposes of the reverse stock split. If the shareholders vote to approve Proposal No. 4, the reverse stock split will be effected, if at all, only upon a determination by our Board that the reverse stock split is in our and the shareholders’ best interests at that time. In connection with any determination to effect the reverse stock split, our Board will set the time for such a split and select a specific ratio within the range. These determinations will be made by our Board with the intention of creating the greatest marketability for our common stock based upon prevailing market conditions at that time.

Our Board reserves the right to elect not to proceed with, and to abandon, the reverse stock split if it determines, in its sole discretion, that this proposal is no longer in our and our shareholders’ best interests.

 

The reverse stock split, if implemented, would not change the terms of our common stock or result in any change to the rights, preferences or privileges of our outstanding shares of Series B Preferred Stock.

 

Background and Purpose of the Reverse Stock Split

 

The reverse stock split proposal is intended to result in a price level for our common stock that will broaden institutional investor interest. We believe that a number of investment funds and other institutional investors are reluctant to invest, and in some cases may be prohibited from investing, in lower-priced stocks and that brokerage firms are reluctant to recommend lower-priced stocks to their clients. By decreasing the number of our shares of common stock outstanding through a reverse stock split, we believe we may be able to raise our common stock price to a level where our common stock could be viewed more favorably by potential investors. Investors may also be dissuaded from purchasing lower-priced stocks because the brokerage commissions, as a percentage of the total transaction, tend to be higher for lower-priced stocks. A higher stock price could alleviate this concern. The combination of lower transaction costs and increased interest from institutional investors could have the effect of improving the trading liquidity of our common stock. Our Board intends to effect the proposed reverse stock split only if it believes at the time that the reverse stock split would achieve some or all of these objectives and is otherwise in our and our shareholders’ best interest. Our Board may exercise its discretion not to implement a reverse stock split.

 

Certain Risk Factors Associated with the Reverse Stock Split

 

 

Impact of the Proposed Reverse Stock Split if Implemented

 

If approved and implemented, the reverse stock split will take effect simultaneously and in the same ratio for all outstanding shares of our common stock. The reverse stock split will affect all holders of our common stock uniformly and will not affect any shareholder’s percentage ownership interest in us, except to the extent that the reverse stock split would result in any holder of our common stock receiving cash in lieu of fractional shares. As described below, holders of our common stock otherwise entitled to fractional shares as a result of the reverse stock split will receive a cash payment in lieu of such fractional shares. These cash payments will reduce the number of post-reverse stock split holders of our common stock to the extent there are shareholders

who would otherwise receive less than one share of common stock after the reverse stock split. In addition, the reverse stock split will not affect any shareholder’s proportionate voting power (subject to the treatment of fractional shares). The reverse stock split will have no effect on the number of authorized shares of common stock or the par value of the common stock.

 

The principal effects of the reverse stock split will be that:

 

 

In addition, if approved and implemented, the reverse stock split may result in some shareholders owning “odd lots” of less than 100 shares of common stock. Odd lot shares may be more difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally somewhat higher than the costs of transactions in “round lots” of even multiples of 100 shares. Our Board believes, however, that these potential effects are substantially outweighed by the benefits of the reverse stock split.

 

Effective Date

 

The proposed reverse stock split of our common stock would become effective on the date of filing the Reverse Stock Split Amendment with the office of the New York Department of State, or the Effective Date. Except as explained below with respect to fractional shares, on such date, shares of common stock issued and outstanding immediately prior thereto will be combined, automatically and without any action on the part of the shareholders, into one share of our common stock in accordance with the reverse stock split ratio determined by our Board.

 

After the Effective Date, our common stock will have a new CUSIP number, which is a number used to identify our equity securities, and stock certificates with the former identification numbers will need to be exchanged for stock certificates with the new numbers by following the procedures described below.

 

After the Effective Date, we will continue to be subject to periodic reporting and other requirements of the Securities Exchange Act of 1934, as amended. Our common stock will continue to be reported on the Nasdaq Global Market under the symbol “BPSG”, although Nasdaq Global Market will add the letter “D” to the end of the trading symbol for a period of 20 trading days after the Effective Date to indicate that the reverse stock split has occurred.

 

Board Discretion to Implement the Reverse Stock Split

 

If the reverse stock split is approved by our shareholders, it will be effected, if at all, only upon a determination by our Board that a reverse stock split (at a ratio determined by our Board as described above) is in our and our shareholders’ best interests. The Board’s determination as to whether the reverse stock split

will be effected and, if so, at what ratio, will be based upon several factors, including existing and expected marketability and liquidity of our common stock, prevailing market conditions and the likely effect on the market price of our common stock.

 

Fractional Shares

 

Shareholders will not receive fractional shares in connection with the reverse stock split. In lieu of issuing fractional shares, we will pay each holder of common stock who would otherwise have been entitled to a fraction of a share a cash payment in an amount determined by multiplying (i) the number of shares of our common stock that would otherwise have been exchanged by such shareholder for the fractional share interest by (ii) the average closing sale price of shares of common stock for the ten trading days immediately prior to the Effective Date or, if no such sale takes place on such days, the average of the closing bid and ask prices for such days, in each case as officially reported by The Nasdaq Global Market. No transaction costs will be assessed. However, the payments will be subject to certain taxes as discussed below. In addition, shareholders will not be entitled to receive interest for the period of time between the Effective Date and the date a shareholder receives payment for the cashed-out shares. The payment amount will be paid to the shareholder in the form of a check in accordance with the procedures outlined below.

 

After the reverse stock split, a shareholder will have no further interest in us with respect to their cashed-out shares. A person otherwise entitled to a fractional interest will not have any voting, dividend or other rights except to receive payment as described above.

 

If a shareholder does not hold sufficient shares of our common stock to receive at least one share in the reverse stock split and wants to continue to hold our common stock after the reverse stock split, a shareholder may do so by taking either of the following actions far enough in advance so that it is completed by the Effective Date:

 

1) purchase a sufficient number of shares of our common stock so that the shareholder holds at least an amount of shares of common stock in the shareholder’s account prior to the reverse stock split that would entitle the shareholder to receive at least one share of our common stock on a post-reverse stock split basis; or

 

2) if applicable, consolidate the shareholder’s accounts so that the shareholder holds at least an amount of shares of common stock in one account prior to the reverse stock split that would entitle the shareholder to receive at least one share of common stock on a post-reverse stock split basis. Shares held in registered form (that is, by the shareholder in the shareholder’s name in our stock records maintained by our transfer agent) and shares held in “street name” (that is, shares held by a shareholder through a bank, broker or other nominee), for the same investor will be considered held in separate accounts and will not be aggregated when effecting the reverse stock split.

 

Effect on Beneficial Holders of Common Stock (i.e. Shareholders Who Hold in “Street Name”)

 

Upon the reverse stock split, we intend to treat shares held by shareholders in “street name” (i.e., through a bank, broker or other nominee) in the same manner as registered shareholders whose shares are registered in their names. Banks, brokers or other nominees will be instructed to effect the reverse stock split for their beneficial holders holding our common stock in “street name.” However, these banks, brokers or other nominees may have different procedures than registered shareholders for processing the reverse stock split and making payment for fractional shares. If a shareholder holds shares of our common stock with a bank, broker or other nominee and has any questions in this regard, shareholders are encouraged to contact their bank, broker or other nominee.

 

Effect on Registered “Book-Entry” Holders of Common Stock (i.e. Shareholders that are Registered on our Transfer Agent’s Books and Records but do not Hold Stock Certificates)

 

Certain of our registered holders of common stock may hold some or all of their shares electronically in book-entry form with our transfer agent. These shareholders do not have stock certificates evidencing their

ownership of our common stock. They are, however, provided with a statement reflecting the number of shares registered in their accounts.

 

If a shareholder holds registered shares in book-entry form with our transfer agent, the shareholder will be required to complete and return to our transfer agent a letter of transmittal in order to be credited with post-reverse stock split shares or to receive cash payment in lieu of any fractional share interest. A form of letter of transmittal will be furnished to each such shareholder by our transfer agent, American Stock Transfer & Trust, LLC, after the Effective Date. If a shareholder is entitled to a payment in lieu of any fractional share interest, a check will be mailed to the shareholder’s registered address as soon as practicable after receipt of the letter of transmittal by our transfer agent. By signing and returning the letter of transmittal, shareholders will warrant that they owned the shares of common stock to which the letter of transmittal relates.

 

Effect on Certificated Shares

 

Shareholders holding shares of our common stock in certificate form will be sent a letter of transmittal by our transfer agent as soon as practicable after the Effective Date. The letter of transmittal will contain instructions on how a shareholder should surrender his or her certificate(s) representing shares of our common stock, or the Old Certificates, to our transfer agent in exchange for certificates representing the appropriate number of whole shares of post-reverse stock split common stock, or the New Certificates. No New Certificates will be issued to a shareholder until such shareholder has surrendered all Old Certificates, together with a properly completed and executed letter of transmittal, to our transfer agent. No shareholder will be required to pay a transfer or other fee to exchange his, her or its certificates.

 

Shareholders will then receive a New Certificate(s) representing the number of whole shares of common stock to which they are entitled as a result of the reverse stock split. Until surrendered, we will deem outstanding Old Certificates held by shareholders to be cancelled and to represent only the number of whole shares of post-reverse stock split common stock to which these shareholders are entitled.

 

Any Old Certificates submitted for exchange, whether because of a sale, transfer or other disposition of stock, will automatically be exchanged for New Certificates.

 

If an Old Certificate has a restrictive legend on the back of the Old Certificate(s), the New Certificate will be issued with the same restrictive legends that are on the back of the Old Certificate(s).

 

If a shareholder is entitled to a payment in lieu of any fractional share interest, such payment will be made as described above under “Fractional Shares.”

 

SHAREHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY STOCK CERTIFICATE(S) UNTIL REQUESTED TO DO SO.

 

Accounting Matters

 

The reverse stock split will not affect the par value of a share of our common stock. As a result, as of the Effective Date, the stated capital attributable to common stock on our balance sheet will be reduced proportionately based on the reverse stock split ratio (including a retroactive adjustment of prior periods), and the additional paid-in capital account will be credited with the amount by which the stated capital is reduced. Reported per-share net income or loss will be higher because there will be fewer shares of common stock outstanding.

 

No Appraisal Rights

 

Under the New York Business Corporation Law, our shareholders are not entitled to appraisal rights with respect to the reverse stock split, and we will not independently provide shareholders with any such right.

 

Material U.S. Federal Income Tax Consequences of the Reverse Stock Split

 

The following discussion summarizes certain U.S. federal income tax consequences of the reverse stock split that may be relevant to holders of our common stock that hold such stock as a “capital asset” as defined

in the Internal Revenue Code of 1986, as amended (the “Code”). This summary is based upon the provisions of the Code, Treasury regulations promulgated thereunder, administrative rulings and judicial decisions as of the date hereof, all of which may change, possibly with retroactive effect, resulting in U.S. federal income tax consequences that may differ from those discussed below. The tax consequences set forth below are not intended to constitute a complete discussion of all tax consequences relating to the reverse stock split. This summary is of a general nature only and is not intended to be, and should not be construed to be, legal or tax advice to any particular stockholder.

 

This discussion does not address all aspects of U.S. federal income taxation that may be relevant to such holders in light of their particular circumstances or to holders that may be subject to special tax rules, including, without limitation: (i) holders subject to the alternative minimum tax; (ii) banks, insurance companies, or other financial institutions; (iii) tax-exempt organizations; (iv) dealers in securities or commodities; (v) regulated investment companies or real estate investment trusts; (vi) partnerships or other flow-through entities for U.S. federal income tax purposes and their partners or members; (vii) traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; (viii) holders whose “functional currency” is not the U.S. dollar; (ix) persons holding our common stock as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction; (x) persons who acquire shares of our common stock in connection with employment or other performance of services; or (xi) U.S. expatriates. This summary also does not address the tax consequences arising under the laws of any foreign, state or local jurisdiction and U.S. federal tax consequences other than U.S. federal income taxation. In addition, this discussion does not address the U.S. federal income tax consequences to a beneficial holder of our common stock who, for U.S. federal income tax purposes, is a non-resident alien individual, a foreign corporation, a foreign partnership or a foreign estate or trust.

 

We have not sought, and will not seek, an opinion of counsel or a ruling from the Internal Revenue Service (the “IRS”) regarding the U.S. federal income tax consequences of the reverse stock split, and there can be no assurances the IRS will not challenge the statements and conclusions set forth below or that a court would not sustain any challenge.

 

DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, STOCKHOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT TO THEM, INCLUDING THE EFFECTS OF APPLICABLE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.

 

PURSUANT TO U.S. TREASURY DEPARTMENT CIRCULAR 230, WE ARE INFORMING YOU THAT (A) THIS DISCUSSION IS NOT INTENDED TO BE USED, WAS NOT WRITTEN TO BE USED, AND CANNOT BE USED, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING PENALTIES UNDER THE U.S. FEDERAL TAX LAWS THAT MAY BE IMPOSED ON THE TAXPAYER, (B) THIS DISCUSSION WAS WRITTEN IN CONNECTION WITH OUR SOLICITATION OF PROXIES, AND (C) EACH TAXPAYER SHOULD SEEK ADVICE BASED ON HIS, HER OR ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

 

The reverse stock split should constitute a “recapitalization” for U.S. federal income tax purposes. As a result, a holder generally should not recognize gain or loss upon the reverse stock split, except with respect to cash received in lieu of a fractional share of our common stock, as discussed below. A holder’s aggregate tax basis in the shares of our common stock received pursuant to the reverse stock split should equal the aggregate tax basis in the common stock surrendered (excluding any portion of such basis that is allocated to any fractional shares of our common stock). The holder’s holding period for the post-reverse stock split shares should include the period during which the holder held the shares of common stock surrendered in the reverse stock split. Treasury regulations promulgated under the Code provide detailed rules for allocating the tax basis and holding period of the shares of our common stock surrendered to the shares of our common stock received pursuant to the reverse stock split. Holders of shares of our common stock acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares.

In general, holders who receive cash in lieu of a fractional share of our common stock as a result of the reverse stock split will recognize taxable gain or loss based on the difference between the amount of cash received by such holder and the adjusted tax basis in the shares of our common stock surrendered that is allocated to such fractional shares of our common stock. The gain or loss will generally constitute a capital gain or loss and will constitute long-term capital gain or loss if the holder’s holding period is greater than one year as of the Effective Date.

 

Information returns may be required to be filed with the IRS with respect to the receipt of cash in lieu of a fractional share of our common stock pursuant to the reverse stock split. In addition, holders may be subject to a backup withholding tax (currently 28%) on the payment of such cash if they do not provide their taxpayer identification numbers in the manner required or otherwise fail to comply with applicable backup withholding tax rules. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or allowed as a credit against the holder’s federal income tax liability, if any, provided the required information is timely furnished to the IRS.

 

Required Approval

 

The affirmative vote of a majority of the outstanding shares of common stock is required for the approval of the Reverse Stock Split Amendment. The Board has unanimously voted in favor of the Reverse Stock Split Amendment.

 

The Board recommends that the Company’s shareholders vote “FOR” the amendment to the Company’s certificate of incorporation to effect a reverse stock split.

PROPOSAL NO. 5

RATIFICATION OF SELECTION
OF INDEPENDENT ACCOUNTANTS

 

The Audit Committee of the Board of Directors has selected PricewaterhouseCoopers LLP as the Company’s independent accountants for fiscal year ending December 31, 2009. We are submitting the selection of independent accountants for shareholder ratification at the Annual Meeting.

 

A representative of PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting, will have the opportunity to make a statement if he or she desires to do so and will be available to respond to appropriate questions from shareholders.

 

Our organizational documents do not require that our shareholders ratify the selection of PricewaterhouseCoopers LLP as our independent accountants. We are doing so because we believe it is a matter of good corporate practice. If our shareholders do not ratify the selection, the Audit Committee will reconsider whether or not to retain PricewaterhouseCoopers LLP but still may retain them. Even if the selection is ratified, the Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders. The Audit Committee, or a designated member thereof, pre-approved each audit and non-audit service rendered by PricewaterhouseCoopers LLP to the Company.

 

The Board recommends that the Company’s shareholders vote “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as independent accountants of the Company for the fiscal year ending December 31, 2009.

Principal Accounting Firm Fees

 

The following table shows information about fees billed to the Company by PricewaterhouseCoopers LLP:

 

 

 

 

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 provides for categorical pre-approval of specified audit and permissible non-audit services and requires the specific pre-approval by the Audit Committee, prior to engagement, of such services that are individually estimated to result in an amount of fees that exceed $50,000. In addition, services to be provided by the independent accountants that are not within the category of pre-approved services must be approved by the Audit Committee prior to engagement, regardless of the service being requested or the dollar amount involved.

 

Requests or applications for services that require specific separate approval by the Audit Committee are required to be submitted to the Audit Committee by both the independent accountants and the 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.

 

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 Exchange Act, the Company believes that all such reports were filed on a timely basis during fiscal year 2008, or were previously reported.

 

The following table sets forth information concerning the beneficial ownership of common stock of the Company as of March 5, 2009, by (i) each person whom we know beneficially owns more than five percent of the common stock, (ii) each of our directors and nominees for the board of directors, (iii) each of our named executive officers, and (iv) all of our directors and current executive officers as a group.

 

 

 

 

 

The following table sets forth certain information regarding the compensation of the Company’s directors for the fiscal year ended December 31, 2008 other than Messrs. Fensterstock and McNierney whose compensation is discussed below under “Compensation of Executive Officers.”

 

 

 

 

For 2008, the Company’s policy with respect to Director compensation was to pay Directors who were not employees of the Company (the “Non-Employee Directors”) (1) an annual cash retainer of $25,000 and (2) an award of $25,000 in restricted stock. In addition, an annual cash retainer of $25,000 was paid to the Chair of the Audit Committee. Employee directors did not receive any compensation for their service as members of the Board. Effective as of the 2009 Annual Meeting, the Company’s policy will be to pay Non-Employee Directors an annual cash retainer of $50,000, to pay an additional annual cash retainer of $25,000 to the Chair of the Executive Compensation Committee and to the Chair of the Audit Committee, and to pay an additional annual cash retainer of $15,000 to each member of the Audit Committee (other than the Chair). In addition, subject to the approval by shareholders of the amendment and restatement of the 2003 Non-Employee Directors Stock Plan, the Company’s policy will be to grant Non-Employee Directors either an award of stock options worth $50,000 (as determined by the Board) or $50,000 of restricted shares, as elected by each Non-Employee Director, and to permit each Non-Employee Director to elect to receive his or her cash retainers in the form of stock options or restricted stock. Employee directors still do not receive any compensation for their service as members of the Board.

 

Under the 2003 Non-Employee Directors Stock Plan, the number of options or restricted shares awarded are generally within the discretion of the Board, except that no Non-Employee Director may receive an option covering shares or restricted shares in any year, in each case, worth more than $50,000 (or, under the proposed amendment and restatement of the plan, options worth more than $100,000 or more than $100,000 of restricted shares). All options that may be granted under the 2003 Non-Employee Directors Stock Plan will have an exercise price equal to the fair market value of the common stock on the date of grant, become exercisable in three equal installments beginning on the first anniversary of the date of grant (unless the Board in its discretion designates another vesting schedule, as would be permitted under the proposed amendment and restatement of the plan), and have a ten-year term (unless the Board determines that the option will have a shorter term, as would be permitted under the proposed amendment and restatement of the 2003 Plan). Shares of restricted stock will be subject to vesting conditions as set forth in the award agreement. If a person ceases to be a director for any reason (other than death or total disability), any unvested restricted shares or unexercisable stock options will be forfeited. In the case of death or total disability of a director, he or she (or the estate or other legal representatives) shall become 100% vested in any restricted shares as of the date of termination of service on the Board. Such Non-Employee Director’s right to exercise any then-exercisable stock option will terminate 90 days after the date of such termination (but not beyond the stated term of such stock option). If a Non-Employee Director dies or becomes totally disabled, such director (or the estate or other legal representative of the Non-Employee Director), to the extent the stock options are exercisable immediately prior to the date of death or total disability, will be entitled to exercise any stock options at any time within the one-year period following such death or disability, but not beyond the stated term of such stock option. If a Change of Control occurs (i) all stock options then unexercised and outstanding will become fully vested and exercisable and (ii) all restrictions, terms and conditions applicable to restricted shares then outstanding will be deemed lapsed and satisfied, each as of the date of the Change of Control.

 

In addition to any annual grant of options or restricted shares, under the 2003 Non-Employee Directors Stock Plan, the Board may from time to time make additional discretionary grants (subject to the limits noted above) and may permit a Non-Employee Director to elect to receive all or a portion of his/her annual cash retainer in restricted shares (or in stock options under the proposed amendment and restatement of the plan).

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

On April 26, 2007, the Board of Directors adopted a new Related Party Transactions Policy (the “Policy”). Under the Policy only those related party transactions that have terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party and that are approved or ratified by the Audit Committee, the disinterested members of the Board of Directors, and, if and to the extent involving compensation, the Executive Compensation Committee, may be consummated or permitted to continue. “Related Parties” include any senior officer (including all executive officers of the Company and its subsidiaries) or director of the Company, any shareholder owning more than 5% of the Company (or its controlled affiliates), any person who is an immediate family member of a senior officer or director, and any entity owned or controlled by such persons or in which such persons have a substantial ownership interest.

“Related Party Transactions” include any transaction between the Company and any Related Party (including any transactions requiring disclosure under Item 404 of Regulation S-K under the Exchange Act) except transactions available to all employees generally or those involving less than $5,000 when aggregated with all similar transactions. Pursuant to the Policy, any proposed Related Party Transactions may be submitted for consideration at the Audit Committee’s regular quarterly meetings. Following the Audit Committee’s review, the Committee will either approve or disapprove such transactions. In the event that management recommends any transactions in between regularly scheduled meetings, management will confer with the Chair of the Audit Committee as to whether the Company may preliminarily enter into such arrangement subject to ratification by the full Audit Committee at the next regularly scheduled meeting. Each of the referenced transactions below that require approval or ratification by the Audit Committee pursuant to the Policy have been so approved or ratified.

 

First Clearing — Margin Loans

 

During 2008, First Clearing, LLC, a clearing firm with which Broadpoint Capital, Inc., the Company’s broker-dealer subsidiary, has contracted for broker dealer trading activities, extended credit in the ordinary course of its business to employees, including directors and executive officers, under Regulation T, which regulates credit in cash and margin accounts. If an account holder failed to meet a margin call and the securities in the account holder’s account prove insufficient to satisfy the margin call, the Company could have been obligated to satisfy the call on behalf of the account holder. No such extensions of credit required such actions and all were made on the same terms as for customers. As of July 2008, Broadpoint Capital was no longer subject to this arrangement.

 

FA Technology Ventures, L.P.

 

As of December 31, 2008, the Company had a commitment to invest as a limited partner up to $1.3 million ($1.3 million as of December 31, 2007) in FA Technology Ventures, L.P. (the “Fund”), a technology fund whose primary purpose is to provide investment returns consistent with the risk of investing in venture capital. The Company also had a commitment as of that date to invest up to an additional $0.1 million ($0.2 million as of December 31, 2007) 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. These commitments extended initially to the end of the Fund’s commitment period, which expired in July 2006; however, the general partner may continue to make capital calls up through July 2011 for additional investments in portfolio companies and the payment of management fees. The Fund is managed by FA Technology Ventures Corporation (“FATV”), a wholly-owned subsidiary of the Company, which receives management fees for its services. George C. McNamee, a former director, is an employee of this subsidiary and received $305,000 and $240,000 in compensation from it in 2007 and 2008, respectively. In addition, Mr. McNamee is a member of FATV GP LLC, the general partner of the Fund, with a current 16.50% membership interest. As a result of this interest in the general partner, he would be entitled to receive 17.02% 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.

 

On April 30, 2008, the Company entered into a Transition Agreement (the “Transition Agreement”) with FATV, FA Technology Holding, LLC (“NewCo”), Mr. McNamee, and certain other employees of FATV (such individuals, collectively, the “FATV Principals”), to effect a restructuring of the investment management arrangements relating to the Fund, and the formation of FA Technology Ventures III, L.P., a new venture capital fund (“Fund III”). The Transition Agreement provides that if the initial closing of Fund III does not occur on or before March 31, 2009, the parties’ rights and obligations under the Transition Agreement shall automatically terminate, except as follows: (a) certain nonsolicitation obligations of the FATV Principals shall continue and (b) upon the initial closing of any subsequent venture capital fund sponsored by NewCo or any 4 of the 6 FATV Principals before June 30, 2009, NewCo or such FATV Principals shall cause NewCo or such subsequent fund to reimburse the Company for any expenses related to the organization and marketing of

Fund III funded by the Company. The initial closing of Fund III did not occur on or before March 31, 2009, and the Transition Agreement has terminated in accordance with its terms.

 

Johnson Consulting Agreement

 

As of February 1, 2005, the Company entered into a Consulting Agreement with Hugh A. Johnson, Jr., a former director of the Company and Chairman of Johnson Illington (“JIA”) (the “Consulting Agreement”). JIA purchased the Albany, New York operations of FA Asset Management Inc. in February 2005. As part of the consideration for the purchase, JIA is obligated to pay the Company a percentage of its revenues earned through 2009. No such payments were made in 2006, 2007 or 2008. In addition, the Company made payments of $36,706 in 2006 to JIA for certain management fees for investments. No such payments were made in 2007 or 2008. Under the terms of the Consulting Agreement, Mr. Johnson ended his employment with the Company and began serving as a consultant to the Company for a three-year period beginning February 2005. The Consulting Agreement further provided that Mr. Johnson received an annual consulting fee of $250,000 and provided Mr. Johnson with an office, and reimbursement for reasonable travel expenses in connection with the consulting services.

 

Murphy Settlement Agreement

 

In connection with the termination of Arthur Murphy’s employment by Broadpoint Capital as Executive Managing Director, Mr. Murphy, also a former member of the Board of Directors of the Company, filed an arbitration claim against Broadpoint Capital, Alan Goldberg, former President and Chief Executive Officer, and George McNamee, former Chairman of the Company with the National Association of Securities Dealers on June 24, 2005. The claim alleged damages in the amount of $8 million based on his assertions that he was fraudulently induced to remain in the employ of Broadpoint Capital. Without admitting or denying any wrongdoing or liability, on December 28, 2006, Broadpoint Capital, entered into a settlement agreement with Arthur Murphy in connection with such arbitration claim.

 

MatlinPatterson Private Placement

 

On September 21, 2007 the Company issued and sold 38,354,293 newly-issued unregistered shares of common stock of the Company for an aggregate cash purchase price of $50 million (the “Private Placement”) to MatlinPatterson FA Acquisition LLC, a Delaware limited liability company (“MatlinPatterson”) and certain co-investors pursuant to the Investment Agreement, dated as of May 14, 2007 (the “Investment Agreement”), between the Company and MatlinPatterson.

 

Pursuant to the Investment Agreement, MatlinPatterson had the right to designate one or more co-investors to purchase a portion of the shares of common stock to be purchased by MatlinPatterson in place of MatlinPatterson. On September 21, 2007, MatlinPatterson entered into a Co-Investment Agreement with Robert M. Tirschwell pursuant to which MatlinPatterson and Mr. Tirschwell agreed that Mr. Tirschwell would purchase the number of shares corresponding to an aggregate purchase price of $450,000. On September 21, 2007, MatlinPatterson also entered into a Co-Investment Agreement with Robert M. Fine pursuant to which MatlinPatterson and Mr. Fine agreed that Mr. Fine would purchase the number of shares corresponding to an aggregate purchase price of $130,000. Pursuant to the Investment Agreement and in connection with MatlinPatterson’s co-investor designations, the Company, MatlinPatterson and each of Mr. Tirschwell and Mr. Fine entered into co-investor joinder agreements, which provide as follows:

 

Robert M. Tirschwell.  On September 21, 2007, pursuant to the Investment Agreement, the Company entered into a Co-Investor Joinder Agreement (the “Tirschwell Joinder Agreement”) with Mr. Tirschwell and MatlinPatterson wherein the Company agreed to issue and sell to Mr. Tirschwell the number of shares of common stock, to be purchased by MatlinPatterson, corresponding to an aggregate purchase price of $450,000, on the terms set forth in the Investment Agreement. Pursuant to the Tirschwell Joinder Agreement, Mr. Tirschwell agreed to become a party to the Investment Agreement as a “Purchaser” thereunder, and agreed to perform, and be bound by, all the obligations of a Purchaser under the Investment Agreement. Mr. Tirschwell is the Head of Trading of Broadpoint DESCAP, a division of Broadpoint Capital.

Robert M. Fine.  On September 21, 2007, pursuant to the Investment Agreement, the Company entered into a Co-Investor Joinder Agreement (the “Fine Joinder Agreement”) with Mr. Fine and MatlinPatterson wherein the Company agreed to issue and sell to Mr. Fine the number of shares of common stock, to be purchased by MatlinPatterson, corresponding to an aggregate purchase price of $130,000, on the terms set forth in the Investment Agreement. Pursuant to the Fine Joinder Agreement, Mr. Fine agreed to become a party to the Investment Agreement as a “Purchaser” thereunder, and agreed to perform, and be bound by, all the obligations of a Purchaser under the Investment Agreement. Mr. Fine is the President of Broadpoint DESCAP.

 

As a result of these arrangements, on September 21, 2007 MatlinPatterson contributed from its working capital $49,420,000 of the $50 million cash purchase price and received 37,909,383 newly-issued shares of the Company’s common stock. Mr. Fine contributed from his personal funds $130,000 of the $50 million cash purchase price and received 99,721 newly-issued shares of the Company’s common stock. Mr. Tirschwell contributed from his personal funds $450,000 of the $50,000,000 cash purchase price and received 345,189 newly-issued shares of the Company’s common stock.

 

The number of shares issued to MatlinPatterson, Mr. Tirschwell and Mr. Fine was subject to upward adjustment within 60 days of the closing of the Investment Agreement in the event that the final net tangible book value per share of the Company as of September 21, 2007 was less than $1.60. On February 21, 2008, the Company entered into an agreement with MatlinPatterson, Mr. Tirschwell and Mr. Fine agreeing that the final net tangible book value per share of the Company as of September 21, 2007 was $1.25. Pursuant to the terms of such agreement, the Company agreed to issue 3,632,009 additional shares of common stock of the Company to MatlinPatterson, Mr. Tirschwell and Mr. Fine in satisfaction of this requirement. MatlinPatterson currently holds approximately 54% of the Company’s outstanding common stock.

 

Upon the closing of the Private Placement, the Company entered into a Registration Rights Agreement, dated as of September 21, 2007 (the “Registration Rights Agreement”), with MatlinPatterson, Mr. Tirschwell and Mr. Fine, which was amended by Amendment No. 1 to the Registration Rights Agreement, dated as of March 4, 2008. The Registration Rights Agreement contains other customary terms found in such agreements, including provisions concerning registration rights, registration procedures and piggyback registration rights as well as customary indemnification rights for MatlinPatterson, Mr. Tirschwell and Mr. Fine. Pursuant to the Registration Rights Agreement, the Company would bear all of the costs of any registration other than underwriting discounts and commissions and certain other expenses.

 

Pursuant to the Investment Agreement and with respect to last year’s annual meeting of shareholders, MatlinPatterson had the right to designate directors to be appointed to the Company’s Board of Directors. Each of Messrs. Patterson, Fensterstock, Pechock and Plimpton were designated to the Board pursuant to such right of MatlinPatterson.

 

Voting Agreement with MatlinPatterson

 

On February 29, 2008, the Company and MatlinPatterson entered into a Voting Agreement (the “Voting Agreement”) whereby MatlinPatterson agreed to vote its shares in the Company in favor of an increase in the number of authorized shares under the 2007 Plan to be submitted to shareholders at the 2008 Annual Meeting of Shareholders. Such increase in the number of authorized shares was approved at such meeting.

 

Brokerage and Investment Banking Services for MatlinPatterson

 

From time to time, Broadpoint Capital provides brokerage services to MatlinPatterson or its affiliated entities, which services are provided by Broadpoint Capital in the ordinary course of its business. No such services were provided in 2007. In 2008 and for 2009 through February 28, 2009, MatlinPatterson paid $255,441 and $153,493, respectively, to Broadpoint Capital for such services.

 

From time to time Broadpoint Capital also provides investment banking services to MatlinPatterson or its affiliated entities, which services are provided by Broadpoint Capital in the ordinary course of its business. No

such services were provided in 2007. In 2008 and 2009 through February 28, 2009, Broadpoint Capital has earned $8.4 million and $579,991, respectively, from MatlinPatterson Global Advisers LLC for such services.

 

Fensterstock Consulting Arrangement

 

From July 2007 through September 21, 2007, Mr. Fensterstock served as a consultant to the Company prior to becoming its Chief Executive Officer. The Company paid $83,000 to Mr. Fensterstock pursuant to such arrangement.

 

Mast Private Placement

 

On March 4, 2008, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with MatlinPatterson, Mast Credit Opportunities I Master Fund Limited, a Cayman Islands corporation (“Mast”) and certain Individual Investors listed on the signature pages to the Stock Purchase Agreement (the “Individual Investors”, and together with the MatlinPatterson and Mast, the “Investors”). Pursuant to the terms of the Stock Purchase Agreement, the Company issued and sold 11,579,592 shares of common stock to the Investors, with 7,058,824 shares being issued to Mast, 1,594,000 shares being issued to the MatlinPatterson and 2,926,768 shares issued to the Individual Investors. The shares were sold for an aggregate purchase price of approximately $19.7 million, with the proceeds from the sale to be used for working capital. In addition, all of the Individual Investors are employees of the Company and/or its wholly-owned subsidiary Broadpoint Capital, including Lee Fensterstock, the current Chairman and Chief Executive Officer of the Company, and other senior officers of Broadpoint Capital.

 

Concurrently with the execution of the Stock Purchase Agreement, the Company entered into a Registration Rights Agreement, dated as of March 4, 2008 (the “Mast Registration Rights Agreement”), with Mast with respect to the shares that Mast purchased pursuant to the Stock Purchase Agreement (the “Mast Shares”). Pursuant to the Mast Registration Rights Agreement, the Company was required to file within 30 days following March 4, 2008, and did file on April 1, 2008, a registration statement with the SEC for the resale of the Mast Shares in an offering on a delayed or continuous basis pursuant to Rule 415 under the Securities Act (the “Mast Shelf Registration”). The registration statement was declared effective on April 29, 2008. The Company paid for all of the costs of the Mast Shelf Registration, a total of approximately $45,000, other than underwriting discounts and commissions and certain other expenses, and grants customary indemnification rights thereunder to Mast.

 

Mast Mandatory Redeemable Preferred Stock

 

On June 27, 2008 the Company entered into the Preferred Stock Purchase Agreement with Mast for the issuance and sale of (i) 1,000,000 newly-issued unregistered shares of Series B Mandatory Redeemable Preferred Stock of the Company, par value $1.00 per share (the “Series B Preferred Stock”) and (ii) a warrant to purchase 1,000,000 shares of the Company’s common stock, at an exercise price of $3.00 per share (the “Warrant”), for an aggregate cash purchase price of $25 million.

 

The Preferred Stock Purchase Agreement and the Series B Preferred Stock include, among other things, certain negative covenants and other rights with respect to the operations, actions and financial condition of the Company and its subsidiaries so long the Series B Preferred Stock remains outstanding. Cash dividends of 10% per annum must be paid on the Series B Preferred Stock quarterly, while an additional dividend of 4% per annum accrues and is cumulative, if not otherwise paid quarterly at the option of the Company. The Series B Preferred Stock must be redeemed on or before June 27, 2012.

The redemption prices are as follows:

 

 

The Warrant is subject to customary anti-dilution provisions and expires June 27, 2012. Concurrently with the execution of the Preferred Stock Purchase Agreement, the Company and Mast entered into a Registration Rights Agreement, dated as of June 27, 2008 (the “Warrant Registration Rights Agreement”), with respect to the shares of Common Stock that are issuable to Mast pursuant to the Warrant (the “Warrant Shares”). Pursuant to the Warrant Registration Rights Agreement, Mast has the right to request registration of the Warrant Shares if at any time the Company proposes to register common stock for its own account or for another, subject to certain exceptions for underwriting requirements. In addition, under certain circumstances Mast may demand a registration of no less than 300,000 Warrant Shares. The Company must register such Warrant Shares as soon as practicable and in any event within forty-five (45) days after the demand. The Company will bear all of the costs of all such registrations other than underwriting discounts and commissions and certain other expenses.

 

Concurrently with the execution of the Preferred Stock Purchase Agreement, the Company and Mast entered into a Preemptive Rights Agreement (the “Preemptive Rights Agreement”). The Preemptive Rights Agreement provides that in the event that the Company proposes to offer or sell any equity securities of the Company below the current market price, the Company shall first offer such securities to Mast to purchase; provided, however, that in the case of equity securities being offered to MatlinPatterson, Mast shall only have the right to purchase its pro rata share of such securities (based upon common stock ownership on a fully diluted basis). If Mast exercises such right to purchase the offered securities, Mast must purchase all (but not a portion) of such securities for the price, terms and conditions so proposed. The preemptive rights do not extend to (i) common stock issued to employees or directors pursuant to a plan or agreement approved by the Board of Directors, (ii) issuance of securities pursuant to a conversion of convertible securities, (iii) stock splits or stock dividends or (iv) issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise.

 

Gleacher Transaction

 

On March 2, 2009, the Company and Magnolia Advisory LLC (“Merger Sub”), a wholly-owned subsidiary of the Company that was formed to facilitate the Transaction contemplated by the Merger Agreement, entered into an Agreement and Plan of Merger (the “Merger Agreement”), among the Company, Merger Sub, Gleacher Partners Inc. (“Gleacher”), certain stockholders of Gleacher (the “Signing Stockholders”) and each of the holders of interests in Gleacher Holdings LLC, a Gleacher subsidiary owned 90.85% by Gleacher (the “Holders”). Under the terms of the Merger Agreement:

 

 

 

Subject to certain transfer restrictions, Mr. Gleacher will have the right to have his shares registered in registration statements filed by the Company, and the right to require the Company to file a shelf registration for his shares three years after the closing.

 

Appointment of Eric Gleacher to the Company Board as Chairman of the Board

 

In connection with the Merger Agreement, the Company has agreed to appoint Mr. Gleacher to its Board of Directors and designate him Chairman of the Board of Directors, effective at the time of the closing of the Gleacher Transaction. In connection therewith, the Company agreed to appoint Mr. Gleacher to the class of directors with a term expiring in 2011 (Class I), and also agreed that the Board of Directors of the Company would not take any action to remove Mr. Gleacher as a director for so long as he is employed under the Gleacher Employment Agreement (which will become effective at the closing of the Gleacher Transaction). Although the Merger Agreement provides that Mr. Gleacher will be appointed to Class I, the parties have agreed that Mr. Gleacher will be nominated instead for election at this Annual Meeting as a Class II director, with a term expiring in 2012.

 

Eric Gleacher Employment Agreement

 

Concurrently with the execution of the Merger Agreement, the Company agreed to also appoint Mr. Gleacher as a senior member of the Investment Banking Division of Broadpoint Capital. In connection with such appointment, the Company, Broadpoint Capital, Gleacher Partners LLC (“Gleacher Partners”) and Mr. Gleacher entered into an employment agreement, to become effective as of the closing of the Gleacher Transaction (the “Gleacher Employment Agreement”). During the period beginning on the date of the closing of the Gleacher Transaction and ending as of the date on which the Company determines that Mr. Gleacher’s employment should be transferred to Broadpoint Capital, Mr. Gleacher also will continue to serve as the Chief Executive Officer of Gleacher Partners. The Company will use its reasonable best efforts to combine Broadpoint Capital and Gleacher Partners, or to transfer the employment of all employees of Gleacher Partners to Broadpoint Capital, by December 31, 2009.

 

The Gleacher Employment Agreement provides that Mr. Gleacher will be employed (initially by Gleacher Partners and then by Broadpoint Capital following the transfer of his employment) for a three-year term commencing on the closing date of the Gleacher Transaction, automatically extended for one additional year upon the third anniversary of the effective date without any affirmative action, unless either party to the agreement provides at least six (6) months’ advance written notice to the other party that the employment period will not be extended. Mr. Gleacher will be entitled to receive an annual base salary of $350,000 and to participate in the Investment Banking Division’s annual investment banking bonus pool. Mr. Gleacher’s bonus for the fiscal year that begins prior to the effective date of the Gleacher Employment Agreement will be pro-rated to correspond to the portion of such fiscal year that follows the effective date. For further information regarding the Gleacher Employment Agreement see “Termination and Change in Control Payments”.

 

Waiver of Trading Policy

 

On March 6, 2008, the Company reported in a current report on Form 8-K that, on March 3, 2008, the Board approved a one-time limited waiver under the Company’s insider trading policy (the “Trading Policy”)

that is incorporated into the Company’s Code of Business Conduct and Ethics to Messrs. Fensterstock, Fine and Tirschwell, as well as certain other employees covered by the Trading Policy to acquire shares of the Company’s common stock in connection with the Mast Private Placement. The waiver related to certain provisions of the Trading Policy which provide that certain designated employees may not engage in transactions involving the Company’s securities during certain specified blackout periods. After due consideration and a review of the facts and circumstances, including a determination that the transaction in question did not present the opportunity for insider trading that the Trading Policy was intended to prevent, the Board believed that the waiver was appropriate in this limited case.

 

This Compensation Discussion and Analysis describes and analyzes the objectives, practices, policies and decisions relating to compensation awards to the Company’s executive officers who are named in the tables below and who are referred to as our “named executive officers” or “NEOs”. The Executive Compensation Committee is responsible for approving all compensation awarded to our NEOs.

 

Compensation Philosophy.  Fiscal year 2008 was a historically difficult year for the U.S. and global economy, characterized by a major lack of liquidity, substantially volatile and decreased asset values in nearly all asset classes, and a significant reduction in consumer and investor confidence; 2008 was also a challenging year for the Company, but in many different ways. The Company accomplished an enormous amount in 2008, while repositioning itself for the future. The Company’s overall compensation philosophy of pay for performance has not changed, and the Company’s compensation practice continues to evolve to reflect the realities of the marketplace and the Company’s position in the markets it serves.

 

Objectives of the Compensation Program.  In an effort to correlate executive compensation to the performance of the Company, the Executive Compensation Committee considers a number of different objectives it believes contribute to the financial well-being of the Company. In particular, the Executive Compensation Committee may reward executives for continued improvement in some or all of the following Company-wide performance measures, among others, by:

 

 

In addition, the Executive Compensation Committee recognizes that individual performance and contributions made by the NEOs in connection with implementing the Company’s strategic plan may not always be reflected in the objectives described above. The Executive Compensation Committee, therefore, also examines the growth and development of the business in relation to the Company’s strategic plan and seeks to reward executives who contribute to improvements in relation thereto and, consequently, to the performance of the Company as a whole.

 

The compensation program for the NEOs is designed to attract, retain and reward talented executives who have the experience and ability to contribute materially to the Company’s long-term success and thereby build value for its shareholders. The program is intended to provide competitive base salaries as well as short- and long-term incentives which align management and shareholder objectives and provide the opportunity for NEOs to participate in the success of the Company. In 2008, the Company attempted to meet these objectives during a period of unprecedented challenges, including a U.S. and global economic recession.

 

The Company had the additional challenge of meeting these objectives during a period of tremendous transformation for the Company. This transformation began on May 14, 2007, when the Company announced that the Board had unanimously approved an agreement to recapitalize and receive an equity investment from MatlinPatterson. This transaction (the “Recapitalization”) closed on September 21, 2007 and, pursuant to this

transaction, MatlinPatterson acquired approximately 61% of the Company’s common stock outstanding at the time of the closing of the transaction (approximately 54% of the Company’s common stock as of the Record Date). In connection with the Recapitalization, the Company’s Board of Directors was substantially reconstituted and the Company appointed Lee Fensterstock as our Chairman of the Board and Chief Executive Officer and named Peter McNierney our President and Chief Operating Officer. Since that time, management created a new strategic vision for the Company and implemented it through a series of acquisitions and financing transactions that have served to dramatically transform the Company and resulted in a return to profitability in the 4th Quarter of 2008. These included:

 

 

In addition, during this period the Company implemented several initiatives to restructure its operations. In 2007, the Company began a restructuring plan to properly size the Company’s infrastructure with its then current level of activity. The plan included a reduction in IT and operations support headcount, outsourcing the Company’s clearing operations, and eliminating excess office space. The Company completed this restructuring plan in the 3rd Quarter of 2008. Also, on October 16, 2008, the Company completed the merger of two of its principal broker-dealer subsidiaries, Broadpoint Capital and Broadpoint Securities, Inc for the purpose of increasing efficiencies by enhancing the integration of services and processes across the firm’s business lines. The two firms were merged into a single broker-dealer under the name Broadpoint Capital, Inc. Finally, the firm completed its rebranding process and moved its headquarters to New York City.

 

Peer Group Companies.  As part of its analysis, the Executive Compensation Committee compares the NEOs’ compensation to the compensation of executive officers performing similar functions among a peer group of other publicly traded investment banks. This comparison takes into account the performance of the Company relative to the other companies, the executives’ comparative roles, responsibilities and performance at such companies, and the market size and composition data for such comparable companies. The Executive Compensation Committee reviews such companies’ compensation for comparison purposes but this review is not the determining factor as it is only one of many factors that are considered by the Executive Compensation Committee in setting compensation.

 

The peer group companies reviewed by the Executive Compensation Committee during the year included: Piper Jaffray Companies, Rodman & Renshaw Capital Group, Inc., JMP Group Inc., Stifel Financial Corp. and Cowen Group Inc. The peer group companies are all publicly traded investment banking companies that compete with the Company.

Relationship of Compensation Rewards to Objectives.  Each element of compensation described below is designed to reward different results as summarized below:

 

 

Compensation Elements.  In the financial services industry, base salaries tend to be a relatively modest portion of the total compensation of a company’s employees, including its executive officers, as compared to annual cash bonuses and equity-related grants. Base salaries at the Company are typically set at levels that the Executive Compensation Committee believes are generally competitive with those of executives in similar positions at comparable financial services companies. A significant portion of the total compensation has been historically paid in the form of annual cash bonuses. This practice is intended to maximize the portion of an individual’s compensation that is subject to fluctuation each year based upon corporate and individual performance. Equity-related grants make up the other important component of total compensation and focus on longer-term company objectives. As a result, the predominant portion of our executive officers’ compensation is directly related to short- and long-term corporate performance.

 

We continue to believe that the compensation of our executive officers should be structured to link the executives’ financial reward directly to the performance of the business unit they lead or, as the case may be, to the performance of the Company as a whole as well as to their individual performance. Each element of compensation paid to the Company’s executive officers is designed to support one or more of the objectives described above.

 

Performance Targets.  Pursuant to the respective employment agreements of Messrs. Fensterstock and McNierney, performance targets for each such executive are to be determined by the Board of Directors in good faith consultation with the applicable executive. The Executive Compensation Committee discussed the performance targets of each executive and the successful completion of key components of the Company’s strategic business plan for 2008, including the BNY Acquisition, Mast Private Placement, Mast Preferred Stock Transaction and the AmTech Acquisition. Based on the respective achievements of Messrs. Fensterstock and McNierney, the Executive Compensation Committee determined that each such executive successfully attained his applicable performance targets. Pursuant to the Fensterstock Employment Agreement, 250,000 restricted stock units were granted to Mr. Fensterstock as a result of his achievement of such performance targets. Pursuant to the McNierney Employment Agreement, 125,000 restricted stock units were granted to Mr. McNierney as a result of his achievement of such performance targets.

 

Review.  All of the compensation elements awarded to the NEOs were reviewed by the Executive Compensation Committee. The Compensation Committee believes that each NEO’s compensation package is reasonable and appropriate and that it is aligned with the interests of the Company’s shareholders.

 

The Company has employment agreements with Messrs. Fensterstock, McNierney and Turner, each of which are discussed below. C. Brian Coad, who served as our Chief Financial Officer until March 31, 2008,

served pursuant to an employment agreement he entered into with the Company in June 2006, which was amended in May 2007. Ms. Arciero-Craig, our General Counsel, does not have an employment agreement with us.

 

Base Salary.  Base salaries are typically set by reference to job positions within the Company with increases as a reward for superior performance or as a means to attract or retain necessary executive talent. The Executive Compensation Committee considers the Chief Executive Officer’s recommendations in determining the salary of each of the other executive officers. The base salaries of Messrs. Fensterstock, McNierney, Turner and Coad for 2008 were agreed upon in their employment agreements. Ms. Arciero-Craig’s salary was increased in March 2008.

 

Annual Cash Bonus.  The Executive Compensation Committee determined that in light of the significant transformation of the Company during 2008 (including, but not limited to, the BNY Acquisition, Mast Private Placement, Mast Preferred Stock Transaction and the AmTech Acquisition), along with the Company’s return to profitability in the 4th Quarter and the substantial increases in the Company’s revenues and market capitalization, the senior officers of the Company would receive cash bonuses reflecting these accomplishments. The following cash bonuses were paid to the senior officers referenced below:

 

 

Each of the NEOs also received equity incentives in recognition of their efforts, as well. See “Long-Term Equity Incentives” below.

 

The Executive Compensation Committee noted that, in addition to the cash bonus described above with respect to Mr. Fensterstock, who became Chief Executive Officer in September 2007 upon consummation of the Recapitalization, the Executive Compensation Committee granted him a cash bonus of $200,000 in March 2008 in recognition of his successful efforts on behalf of the Company since becoming Chief Executive Officer, including the successful negotiation of the hiring of 47 employees of the New Jersey-based Fixed Income division of BNY Capital Markets, Inc. and the acquisition of certain related assets and the successful private placement transaction that closed in March 2008, in which the Company raised approximately $19.7 million.

 

Although the Company had not paid bonuses under the Senior Management Bonus Plan for several years, it had been the Company’s practice to utilize this Plan during better times. The specific bonus an executive received was determined by the Executive Compensation Committee with reference to his level of responsibility, individual performance and the performance of his or her business unit and/or the Company. The Executive Compensation Committee evaluated levels of responsibility annually. The Executive Compensation Committee also made assessments of individual performance annually after receiving the recommendations of the Chief Executive Officer. The approved recommendations were based on a number of factors, including the achievement of pre-established individual and corporate performance targets, but also initiative, business judgment, management skills and potential contribution to the firm. At the 2008 Annual Meeting, the Plan was re-approved by shareholders since the Executive Compensation Committee wanted to reestablish this bonus practice. Please note that, in lieu of awarding bonuses under the Senior Management Bonus Plan which are paid solely in the form of cash, the Executive Compensation Committee also may award annual performance bonuses under the 2007 Incentive Compensation Plan which may be paid in the form of cash, equity awards or a combination of equity awards and cash.

 

Long-Term Equity Incentives.

 

Annual Grants.  The Company had historically relied upon annual grants of stock options and then, in the last several years, restricted stock and restricted stock units to retain its executive officers and to focus them on increasing shareholder value over the long term. Historically, these grants were made in mid-February

in conjunction with the payment of annual cash bonuses for the prior fiscal year and were based upon job level, and Company and individual performance during the prior fiscal year.

 

In March 2008, Mr. Fensterstock was awarded 125,000 restricted stock units in recognition of his accomplishments since his appointment as Chief Executive Officer in September 2007. In addition, Ms. Arciero-Craig was awarded 125,000 restricted stock units in connection with her efforts in the latter portion of 2007.

 

Pursuant to their respective employment agreements, on June 30, 2008, Mr. Fensterstock was awarded 250,000 restricted stock units and Mr. McNierney was awarded 125,000 restricted stock units. Pursuant to his employment agreement, Mr. Turner was awarded 450,000 restricted stock units on March 14, 2008 following the commencement of his employment.

 

At the end of 2008, a year of significant accomplishment, the Executive Compensation Committee determined to make an additional award of stock options designed to further incentivize certain senior executives and other business unit leaders to increase shareholder value to at least certain specified levels. The option awards were broken into two tranches, one with a $3 per share strike price (approximately 13.67% above the then market price for the Company’s common stock) and the other with a $4 per share strike price (approximately 35.25% above the then market price for the Company’s common stock). On December 18, 2008, Mr. Fensterstock was awarded options to purchase 1,000,000 shares of the Company’s common stock at $3 per share and 1,000,000 shares of the Company’s common stock at $4 per share. On the same date, Mr. McNierney was awarded options to purchase 300,000 shares of the Company’s common stock at $3 per share and 300,000 shares of the Company’s common stock at $4 per share.

 

Deferred Compensation Plans.  Historically, the Company offered its employees, including its executive officers, tax planning opportunities through nonqualified deferred compensation plans. It first adopted the Deferred Compensation Plan for Key Employees and the Deferred Compensation Plans for Professional and Other Highly Compensated Employees (the “Predecessor Plans”). It then froze these plans in 2005 and adopted new plans (the 2005 Deferred Compensation Plan for Key Employees (“Key Plan”) and the 2005 Deferred Compensation Plan for Professional and Other Highly Compensated Employees (“Professional Plan”) (collectively, the “2005 Plans”)) as a result of changes in the tax laws. However, the Company has decided to freeze the 2005 Plans as well. As a result of declining participation, the costs of administrating the 2005 Plans were determined to outweigh the benefits of maintaining them.

 

Equity-Based Awards Policy.  The Executive Compensation Committee makes specific stock option, restricted stock and other equity-based awards (the “Equity-Based Awards”) to employees of the Company. The Board of Directors also approves all Equity- Based Awards made to executive officers. Management of the Company provides recommendations to the Executive Compensation Committee with respect to the Equity-Based Awards and the Executive Compensation Committee meets as necessary to consider such awards on a timely basis. Equity-Based Awards approved by the Executive Compensation Committee were generally granted as of the date of approval, and the exercise price of any Equity-Based Awards (as applicable) awarded was fixed as of the closing price on the date of grant.

 

Termination of Employment; Change in Control.  The Company does not have a severance plan or change in control plan in place for its employees or its executive officers generally. Under their employment agreements, Messrs. McNierney and Coad would receive severance payments upon their termination of employment by the Company without cause or for good reason. Mr. Coad’s employment agreement, as amended in May 2007, provided that he would be entitled to a lump-sum severance payment equal to $525,000 less the market value, as of the date of the termination of his employment, of one share of Company common stock multiplied by the number of vested restricted stock units held by him at the time of termination of employment. Mr. NcNierney’s employment agreement provides that he would be entitled to a lump-sum severance payment equal to $1.8 million less the market value, as of the date of termination of his employment, of one share of Company common stock multiplied by the number vested restricted stock units held by him at the time of termination. These terms were arrived at in arms-length negotiations with Messrs. McNierney and Coad, and the Company believed at such time that they were necessary to provide this protection to Messrs. McNierney and Coad in return for taking on responsibility for implementing the

Company’s strategic plan and to ensure a smooth transition through the Recapitalization. For the same reasons, the Company offered tax gross-ups to Messrs. McNierney and Coad for any excise taxes they might incur.

 

Mr. Coad resigned as Chief Financial Officer effective March 31, 2008 and left the Company. In connection with his termination of employment, the Company entered into a severance agreement (the “Coad Severance Agreement”) with him which superseded his employment agreement except for certain sections of the employment agreement which remain in effect. In return for his general release of possible claims against the Company, Mr. Coad agreed not to solicit employees of the Company and the Company paid Mr. Coad a lump-sum amount of $494,000 (which approximated the amount owed to Mr. Coad pursuant to his employment agreement). For further information regarding the Coad Severance Agreement see “Termination and Change in Control Payments” below.

 

Under Mr. Fensterstock’s employment agreement, he is entitled to certain severance payments upon his termination of employment by the Company without cause or for good reason. For terminations by the Company without cause, Mr. Fensterstock’s employment agreement provides that (1) he is entitled to receive (A) his salary for the twelve months following the termination of his employment (the “severance period”), (B) a pro rata bonus for the fiscal year in which the severance period ends and any other bonus earned at the time of termination but not yet paid and (C) welfare and other employee benefits through the severance period and (2) his restricted stock units will continue to vest according to schedule (subject to his execution of a settlement and release agreement). For terminations by him for good reason, Mr. Fensterstock’s employment agreement provides that (1) he is entitled to receive (A) his salary through the date of his termination of his employment and any accrued benefits under the Company’s benefit plans and (B) a pro rata bonus for the fiscal year in which his employment ends and any other bonus earned at the time of termination but not yet paid and (2) his restricted stock units will continue to vest according to schedule (subject to his execution of a settlement and release agreement) unless the termination is after a change-of-control in which case (i) all of his outstanding restricted stock units will vest upon termination of employment and (ii) all restricted stock units to which Mr. Fensterstock is entitled pursuant to the agreement that have not been granted as of the date of termination shall be granted on the date of termination and shall be immediately vested. Mr. Fensterstock is entitled to a tax gross-up payment for any excise tax he might incur as a result of a payment under the agreement. These terms were arrived at in arms-length negotiations with Mr. Fensterstock, and the Company believed at such time that they were necessary to provide Mr. Fensterstock with these protections in order to secure his employment as Chief Executive Officer and in light of the then state of the Company and his anticipated contributions to the future success of our Company.

 

Concurrently with the execution of the Merger Agreement, the Company entered into the Gleacher Employment Agreement, effective as of the closing of the Gleacher Transaction. Under the Gleacher Employment Agreement, Mr. Gleacher is entitled to certain severance payments upon certain terminations of his employment, as described below. Equity compensation awards granted to Mr. Gleacher may also vest upon certain terminations of his employment or a change in control of the Company pursuant to their terms. The Company believed it necessary to provide Mr. Gleacher with these protections in order to secure his employment as a senior member of the Investment Banking Division of the Company, and in light of his anticipated contributions to the future success of our Company. For further information regarding the Gleacher Employment Agreement, see “Gleacher Employment Agreement” below.

 

On March 14, 2008, the Board of Directors appointed Robert I. Turner as Chief Financial Officer of the Company, effective March 31, 2008. For further information regarding the employment agreement for Mr. Turner, see “Turner Employment Agreement” below.

 

On September 21, 2007, the Company and Ms. Arciero-Craig entered into a Non-Compete and Non-Solicit Agreement as well as an Addendum thereto of same date (collectively, the “Non-Compete and Non-Solicit Agreement”). Pursuant to the Non-Compete and Non-Solicit Agreement, Ms. Arciero-Craig’s obligation not to compete with the Company does not apply following termination of her employment by the Company without cause, or termination by Ms. Arciero-Craig for “Good Reason” (in each case as defined in the Non-Compete and Non-Solicit Agreement), which includes, among other things, the occurrence of any of the following without her consent: any reduction in her base salary or failure to pay material amounts due to her;

or the assignment to her of any duties inconsistent in any material respect with her position or with her authority, duties or responsibilities as General Counsel, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities. Additionally, upon such termination of employment by Ms. Arciero-Craig, all of her outstanding restricted stock units will not be forfeited and will continue to vest in accordance with their respective schedules (subject to her execution of a settlement and release agreement).

 

Tax and Accounting.  Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), places a limit on the tax deduction for compensation in excess of $1 million paid to certain “covered employees” of a publicly held corporation (generally the 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 the Section 162(m) $1 million deduction limit. While the Company is mindful of the limitations that Section 162(m) may have on the deductibility of compensation, the Company also determined that other reasons for compensation structure could sometimes take precedence over potential tax deductions. The Senior Management Bonus Plan is designed so that annual bonus compensation paid to our covered employees may be considered qualified performance-based compensation within the meaning of Section 162(m). Similarly, the 2007 Incentive Compensation Plan is designed so that awards may be considered performance based compensation. Nevertheless, the cash bonuses paid to executive officers in 2008 did not technically qualify as pursuant to performance-based compensation performance objectives, even though the bonuses were based on Company and individual performance. In addition, the restricted stock units awarded to executive officers in 2008 did not technically qualify as performance-based compensation under Section 162(m). In 2008, the Company could not take a deduction by reason of Section 162(m) with respect to a portion of the compensation paid to Messrs. Fensterstock and McNierney.

 

The following table sets forth certain information regarding compensation of (i) each person who served as Chief Executive Officer during fiscal year 2008, (ii) each person who served as Chief Financial Officer during fiscal year 2008, (iii) the Company’s three most highly compensated executive officers other than the Chief Executive Officer and Chief Financial Officer who were serving as executive officers as of December 31, 2008, and (iv) up to two additional individuals for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer of the Company as of December 31, 2008 (collectively referred to as the “Named Executive Officers”).

 

 

 

 

 

 

Fensterstock Employment Agreement.  The Company entered into an employment agreement with Lee Fensterstock, effective September 21, 2007 (the “Fensterstock Employment Agreement”). Mr. Fensterstock will be entitled to receive an annual base salary of $350,000 and to participate in the Company’s annual bonus pool. It also provides Mr. Fensterstock with a grant of restricted stock units in respect of 1,000,000 shares of the Company’s common stock (10% of which vested on the effective date of the Fensterstock Employment Agreement and 30% on each of the first, second and third anniversaries of such effective date, subject to Mr. Fensterstock’s continued employment with the Company on such dates), as well as subsequent grants of restricted stock units in respect of up to 1,000,000 shares of the Company’s common stock, to be made over a period commencing on June 30, 2008 and ending January 1, 2010 (with one-third of each grant vesting on each of the first, second and third anniversaries of the grant date, subject to Mr. Fensterstock’s continued employment with the Company on such dates). Mr. Fensterstock is also entitled to tax gross-up payments for any excise taxes he might incur as a result of payments under the Fensterstock Employment Agreement. For further information regarding the Fensterstock Employment Agreement see “Termination and Change in Control Payments” below.

 

McNierney Employment Agreement.  The Employment Agreement, effective as of September 21, 2007 (the “McNierney Employment Agreement”), between the Company and Peter McNierney, supersedes and replaces the Employment Agreement, dated as of June 30, 2006, between the Company and Mr. McNierney. Mr. McNierney will be entitled to receive an annual base salary of $300,000 and to participate in the Company’s annual bonus pool. It also provides Mr. McNierney with a grant of restricted stock units in respect of 600,000 shares of the Company’s common stock (10% of which vested on the effective date of the McNierney Employment Agreement and 30% on each of the first, second and third anniversaries of such effective date, subject to Mr. McNierney’s continued employment with the Company on such dates) as well as subsequent grants of restricted stock units in respect of up to 500,000 shares of common stock, to be made over a period commencing on June 30, 2008 and ending January 1, 2010 (with one-third of each grant vesting on each of the first, second and third anniversaries of the grant date, subject to Mr. McNierney’s continued employment with the Company on such dates). Mr. McNierney is also entitled to tax gross-up payments for any excise taxes he might incur as a result of payments under the McNierney Employment Agreement. For further information regarding the McNierney Employment Agreement see “Termination and Change in Control Payments” below.

 

Coad Employment Agreement.  On June 30, 2006, the Company entered into an employment agreement with Mr. Coad (the “Coad Employment Agreement”), which provided for an annual base salary of $200,000 and an annual bonus the amount of which was to be determined on an annual basis. It also provided for a grant of 30,000 shares of the Company’s common stock (all of which were vested as of the Recapitalization), under a restricted share award agreement between the Company and Mr. Coad entered into on June 30, 2006. In addition, the Coad Employment Agreement provided that the Company will reimburse Mr. Coad for all reasonable, documented relocation expenses (including broker’s commissions) in an amount not to exceed $100,000. Mr. Coad was also entitled to tax gross-up payments for any excise taxes he might incur as a result of payments under the Coad Employment Agreement. As of March 14, 2008, however, the Coad Employment Agreement was superseded by the severance agreement (the “Coad Severance Agreement”) between the Company and Mr. Coad, dated as of such date, with the exception of certain sections of the Coad Employment Agreement which remain in effect. For further information regarding the Coad Severance Agreement see “Termination and Change in Control Payments” below.

 

Gleacher Employment Agreement.  Concurrently with the execution of the Merger Agreement, the Company agreed to appoint Mr. Gleacher as Chairman of the Board and as a senior member of the Investment Banking Division of Broadpoint Capital. In connection with such appointment, the Company, Broadpoint Capital, Gleacher Partners LLC (“Gleacher Partners”) and Mr. Gleacher entered into an employment agreement, to become effective as of the closing of the Gleacher Transaction (the “Gleacher Employment Agreement”). During the period beginning on the date of the closing of the Gleacher Transaction and ending as of the date on which the Company determines that Mr. Gleacher’s employment should be transferred to Broadpoint Capital, Mr. Gleacher also will continue to serve as the Chief Executive Officer of Gleacher Partners. The Company will use its reasonable best efforts to combine Broadpoint Capital and Gleacher

Partners, or to transfer the employment of all employees of Gleacher Partners to Broadpoint Capital, by December 31, 2009.

 

The Gleacher Employment Agreement provides that Mr. Gleacher will be employed (initially by Gleacher Partners and then by Broadpoint Capital following the transfer of his employment) for a three-year term commencing on the closing date of the Transaction, automatically extended for one additional year upon the third anniversary of the effective date without any affirmative action, unless either party to the agreement provides at least six (6) months’ advance written notice to the other party that the employment period will not be extended. Mr. Gleacher will be entitled to receive an annual base salary of $350,000 and to participate in the Company’s Investment Banking Division’s annual investment banking bonus pool. Mr. Gleacher’s bonus for the fiscal year that begins prior to the effective date of the Gleacher Employment Agreement will be pro-rated to correspond to the portion of such fiscal year that follows the effective date. For further information regarding the Gleacher Employment Agreement see “Termination and Change in Control Payments” below.

 

In connection with the Gleacher Employment Agreement, the Company and Mr. Gleacher entered into a Non-Competition and Non-Solicitation Agreement (the “Gleacher Non-Competition and Non-Solicitation Agreement”). The Gleacher Non-Competition and Non-Solicitation Agreement contains provisions regarding confidentiality, non-solicitation and other restrictive covenants.

 

Turner Employment Agreement.  On March 14, 2008, the Board of Directors appointed Robert I. Turner as Chief Financial Officer of the Company, effective March 31, 2008. In connection with Mr. Turner’s appointment, the Company entered into a letter agreement (the “Turner Employment Agreement”) and a non-compete and non-solicit agreement with him. The Turner Employment Agreement provides that Mr. Turner will receive a base salary of $250,000 per year for 2008 and, to the extent he remains employed by the Company, his future base salary will be at least $250,000, subject to annual reviews for possible increases. Mr. Turner will be eligible for annual discretionary bonuses and will be entitled to participate in the Company’s standard employee benefit, perquisite and fringe benefit plans, programs and arrangements available to senior officers of the Company. Mr. Turner received 450,000 restricted stock units upon the effectiveness of his appointment (20% of which vests on each of the first five anniversaries of such effective date, subject to Mr. Turner’s continued employment with the Company on such dates). The Turner Employment Agreement also provides that the Company will pay for Mr. Turner’s legal fees in connection with the negotiation and drafting of the Turner Employment Agreement, the non-compete and non-solicit agreement and the restricted stock unit agreement, up to a maximum amount of $25,000. For further information regarding the Turner Employment Agreement see “Termination and Change in Control Payments” below.

The following table sets forth information regarding outstanding equity awards held by the Company’s Named Executive Officers as of December 31, 2008.

 

 

 

 

The following table sets forth information equity awards held by the Company’s Named Executive Officers exercised or vested during fiscal year 2008.

 

 

 

 

The following table sets forth information regarding nonqualified deferred compensation plan accounts of the Company’s Named Executive Officers with respect to fiscal year 2008.

 

 

 

 

 

Deferred Compensation Plans.

 

The Company maintains the 2005 Plans to provide an opportunity for eligible employees to defer the receipt of their salary, bonuses and commissions. Under each of the 2005 Plans (also with respect to the Predecessor Plans), the Board appoints a committee to administer each plan (the “Administrative Committee”). Participation in the 2005 Plans is voluntary (both Key and Professional). A participant may elect to defer anywhere from $3,000 up to 50% of his or her base annual salary, bonus amounts and commission payouts earned for services rendered during a calendar year.

 

For each participant, the Company may, but is not required to, credit the participants in the 2005 Plans with one or more Company matches for a plan year expressed as a percentage of the amount that the participants elected to defer in that plan year. In addition, the Company may, but is not required to, credit a participant with one or more discretionary allocations in respect of a plan year, expressed as a dollar amount or as a percentage of the participants’ base salary, bonus amounts, commission payouts or any combination of the foregoing. The Board has the sole discretion to determine the amount of the Company match or discretionary allocation, the participants who receive the Company match or discretionary allocation and the investment benchmark that applies to the Company match or discretionary allocation. To date, the Company has limited these annual matching contributions to $6,000.

 

The participant may select the investment benchmark used to notionally adjust his or her deferral account from among investment benchmarks made available by the Administrative Committee from time to time. The investment benchmarks available to participants in 2008 were: the Common Stock Investment Benchmark, the Johnson Illington Balanced Portfolio, the Johnson Illington Equity Portfolio, and the Interest Rate Index (collectively, the “Investment Benchmarks”).

 

Any cash earnings generated under an Investment Benchmark (such as interest, dividends, distributions and gains) shall be deemed to be reinstated in that Investment Benchmark, provided, however, that the Administrative Committee may, in its discretion, provide that earnings generated by one or more designated Investment Benchmark be reinvested solely in the Interest Rate Index. All notional acquisitions and dispositions of Investment Benchmarks under a participant’s plan accounts shall be deemed to occur at such times as the Administrative Committee shall determine to be administratively feasible in its sole discretion and the participant’s plan accounts shall be adjusted accordingly. In addition, a participant’s plan accounts may be adjusted from time to time, in accordance with procedures and practices established by the Administrative Committee, in its sole discretion, to reflect any notional transactional costs and other fees and expenses relating to the deemed investment, disposition or carrying of any Investment Benchmark for the participant’s plan accounts. Notwithstanding anything to the contrary, any such adjustments made to any plan account following a Change in Control shall be made in a manner no less favorable to participants than the practices and procedures employed under the plan, or as otherwise in effect, as of the date of the Change in Control.

 

The Administrative Committee may elect to accelerate the vesting of amounts credited to any participant under the 2005 Plans and, under the 2005 Plans, if within two years following a change in control, a participant is terminated without cause or resigns for good reason (each a “Covered Termination”), as of the effective date of the Covered Termination such participant will immediately become vested in 100% of all amounts credited to such participant’s plan account.

 

The 2005 Plans were frozen by the Board of Directors, with respect to deferrals subsequent to the 2006 plan year, effective October 26, 2006 because of declining participation in the 2005 Plans and because the costs of administration outweighed the benefits of maintaining the 2005 Plans.

The Deferred Compensation Plan for Key Employees, effective January 1, 1998 (the “Predecessor Key Plan”), was frozen by the Board of Directors, effective January 1, 2005, in connection with the adoption of the Key Plan in order to satisfy the requirements of the new Section 409A of the Code that was enacted by Congress as part of the American Jobs Creation Act of 2004.

 

Like the Key Plan, the Predecessor Key Plan is an unfunded, non-qualified deferred compensation plan that provided management or highly compensated employees selected by the Administrative Committee with the opportunity to defer specified percentages of their cash compensation and to receive a matching contribution or discretionary allocation from the Company, determined by the Company in its sole discretion. These amounts are credited to the participant’s notional accounts under the Predecessor Key Plan. Participants are permitted to select from among the following investment benchmarks: Common Stock Investment Benchmark, the Johnson Illington Balanced Portfolio, the Johnson Illington Equity Portfolio, and the Interest Rate Index for the notional investment of their deferred compensation, and the Company is permitted to require that the return on the Company’s matching contribution or discretionary allocation be measured by the performance of the common stock. The Company may require that, when a participant receives distribution of his or her accounts, any amounts notionally invested in the common stock will be paid out in shares of the common stock.

 

The Deferred Compensation Plan for Professional and Other Highly Compensated Employees, effective January 1, 2002, formerly known as the Non-ERISA Deferred Compensation Plan, (the “Predecessor Professional Plan”), was frozen by the Board of Directors, effective January 1, 2005, in connection with the adoption of the Professional Plan in order to satisfy the requirements of the new Section 409A of the Code that was enacted by Congress as part of the American Jobs Creation Act of 2004.

 

Like the Professional Plan, the Predecessor Professional Plan is an unfunded, non-qualified deferred compensation plan that provided employees who are not eligible to participate in the Predecessor Key Plan and who were selected by the Administrative Committee with the opportunity to defer specified percentages of their cash compensation and to receive a matching contribution or discretionary allocation from the Company, determined by the Company in its sole discretion. These amounts are credited to the participant’s notional accounts under the Predecessor Professional Plan. Participants are permitted to select from among the following investment benchmarks: the Company’s common stock, the Johnson Illington Balanced Portfolio, the Johnson Illington Equity Portfolio, and the Interest Rate Index for the notional investment of their deferred compensation, and the Company is permitted to require that the return on the Company’s matching contribution or discretionary allocation be measured by the performance of the common stock. The Company may require that, when a participant receives distribution of his or her accounts, any amounts notionally invested in the common stock will be paid out in shares of the Company’s common stock.

 

Under the 2005 Plans, distributions are paid in cash, except that any portion of a distribution that is attributable to an investment in the Common Stock Investment Benchmark will only be paid in shares of the Company’s common stock. Under the Key Plan, the balance of the participant’s plan account is paid out either as (i) a lump sum on or about April 15 as early as the end of the third plan year after the plan year in which the participant’s deferral was made or as late as the tenth plan year or (ii) equal installments commencing no earlier than April 15 of the end of the third plan year after the plan year in which the participant’s deferral was made or no later than the tenth plan year. Distributions under the Professional Plan have a shorter term. The Professional Plan requires all distributions to participants to be paid no later than April 15 of the end of the fifth year after the plan year in which the participant’s deferral was made.

 

Under the 2005 Plans, in the event that a participant or (after a participant’s death) a participant’s beneficiary experiences an unforeseeable financial emergency or, for any reason, the participant’s benefit (all or part) becomes taxable prior to receipt, the participant or beneficiary may petition to receive a partial or full payout of the applicable amounts credited to one or more of the participant’s plan accounts.

 

For further information regarding these plans, see “Termination and Change in Control Payments” below.

Termination and Change in Control Payments

 

The following tables set forth the estimated value of benefits that the Company’s Named Executive Officers would have been entitled to receive assuming certain terminations of employment and/or assuming a change in control of the Company, in each case occurring on December 31, 2008. The following tables also use the Company’s common stock price as of December 31, 2008 ($2.97). For restricted stock, the cash-out value reflects the number of shares vesting as a result of the triggering event multiplied by such stock price. For options, the cash-out value reflects the excess of such stock price over the exercise price of any option vesting as a result of the triggering event and, if there is no excess, it reflects a zero value with respect to such option.