FORM 10-K/A GAMCO Investors, Inc. - Gabelli

Dependence on information systems.
We operate in an industry that is highly dependent on its information systems and technology. We outsource a significant portion of our information systems operations to third
parties who are responsible for providing the management, maintenance and updating of such systems. There can be no assurance, however, that our information systems and
technology will continue to be able to accommodate our growth or that the cost of maintaining such outsourcing arrangements will not increase from its current level. Such a failure
to accommodate growth, or an increase in costs related to these information systems, could have a material adverse effect on us.
We may not be able to refinance or have the funds necessary to repurchase our existing indebtedness.
On August 10, 2001, we and certain of our affiliates entered into a note purchase agreement with Cascade Investment, L.L.C., pursuant to which Cascade purchased $100 million
in principal amount of a convertible promissory note. Pursuant to the terms of the note, Cascade may require us, or upon a change in control or Mr. Gabelli ceasing to provide our
predominant executive leadership, to repurchase the note (i.e., put option) at par plus accrued and unpaid interest on the note. In March 2005, we amended the terms of the
note. The new terms extended the exercise date of Cascade's put option to September 15, 2006, reduced the principal of the convertible note to $50 million, effective April 1,
2005, and removed limitations on the issuance of additional debt. In June 2006, GBL and Cascade agreed to amend the terms of the note. Effective September 15, 2006, the rate
on the note increased from 5% to 6% while the conversion price was raised to $53 per share from $52 per share. In addition, the exercise date of Cascade’s put option was
extended to May 15, 2007, the expiration date of the related letter of credit was extended to May 22, 2007 and a call option was included giving GBL the right to redeem the note
at 101% of its principal amount together with all accrued but unpaid interest thereon upon at least 30 days prior written notice, subject to certain provisions.
If Cascade exercises its right under the note to require us to repurchase the note, we may not be able to obtain new financing on similar terms to the note and may not have sufficient
funds, or we may not be able to arrange financing on acceptable terms, to pay the repurchase price for the note. If we could not obtain sufficient cash to repurchase the note, we
would be in default on our obligation under the note purchase agreement.
Our credit ratings affect our borrowing costs.
Our borrowing costs and our access to the debt capital markets depend significantly on our credit ratings. A reduction in our credit ratings could increase our borrowing costs and
limit our access to the capital markets.
We face exposure to litigation within our business.
The volume of litigation against financial services firms and the amount of damages claimed has increased over the past several years. The types of claims that we may face are
varied. For example, we may face claims against us for purchasing securities that are inconsistent with a client’s investment objectives or guidelines, in connection with the operation
of the Mutual Funds or arising from an employment dispute. The risk of litigation is difficult to assess or quantify, and may occur years after the activities or events at issue. Even if
we prevail in a legal action brought against us, the costs alone of defending against the action could have a material adverse effect on us.
Compliance failures and changes in regulation could adversely affect us.
Our investment management activities are subject to client guidelines, and our Mutual Fund business involves compliance with numerous investment, asset valuation, distribution and
tax requirements. A failure to adhere to these guidelines or satisfy these requirements could result in losses which could be recovered by the client from us in certain
circumstances. Although we have installed procedures and utilize the services of experienced administrators, accountants and lawyers to assist us in adhering to these guidelines and
satisfying these requirements, and maintain insurance to protect ourselves in the case of client losses, there can be no assurance that such precautions or insurance will protect us
from potential liabilities.
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