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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ To ________
Commission file number 1-7265
AMBASE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2962743
(State of incorporation) (I.R.S.Employer Identification No.)
51 Weaver Street, Building 2, Greenwich, CT 06831-5155
(Address of principal executive offices)
Registrant's telephone number, including area code (203) 532-2000
Securities registered pursuant to Section 12(b)of the Act:
Title of each class Name of each exchange on which registered
Common Stock ($0.01 par value) None
Rights to Purchase Common Stock None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. X
At January 31, 2001, there were 46,208,519 shares of registrant's Common Stock
outstanding. At January 31, 2001 the aggregate market value of registrant's
voting securities (consisting of its Common Stock) held by nonaffiliates of the
registrant, based on the average bid and asking price on such date of the Common
Stock of $0.71 per share, was approximately $26 million. The Common Stock
constitutes registrant's only outstanding security.
Portions of the registrant's definitive Proxy Statement for its 2001 Annual
Meeting of Stockholders, which Proxy Statement registrant intends to file with
the Securities and Exchange Commission not later than 120 days after the close
of its fiscal year, is incorporated by reference with respect to certain
information contained therein, in Part III of this Annual Report.
The Exhibit Index is located in Part IV, Item 14, Page 36.
AmBase Corporation
Annual Report on Form 10-K
December 31, 2000
CROSS REFERENCE SHEET FOR
PARTS I, II, III and IV Page
- ---------------------------------------------- ------
PART I
Item 1. Business..........................................................................................1
Item 2. Properties........................................................................................2
Item 3. Legal Proceedings.................................................................................2
Item 4. Submission of Matters to a Vote of Security Holders...............................................3
Executive Officers of the Registrant..............................................................3
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............................4
Item 6. Selected Financial Data...........................................................................4
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............5
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......................................10
Item 8. Financial Statements and Supplementary Data......................................................11
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............35
PART III
Item 10. Directors and Executive Officers of the Registrant...............................................35
Item 11. Executive Compensation...........................................................................35
Item 12. Security Ownership of Certain Beneficial Owners and Management...................................35
Item 13. Certain Relationships and Related Transactions...................................................35
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................36
PART I
ITEM 1. BUSINESS
Corporate Profile
AmBase Corporation (the "Company") was incorporated as a Delaware corporation in
1975 by the City Investing Company ("City") as the holding company for The Home
Insurance Company, a New Hampshire insurance corporation, and its affiliated
property and casualty insurance companies ("The Home"). In 1985, City, which
prior to that date owned all the outstanding shares of the Common Stock of the
Company, distributed the Company's shares to City's common stockholders. The
Home was sold on February 13, 1991 to Home Holdings, Inc. ("Home Holdings").
In December 1997, the Company formed a new wholly-owned subsidiary, SDG
Financial Corp. ("SDG Financial"), to pursue merchant banking activities. SDG
Financial purchased an approximate 6.3% equity interest in SDG, Inc. for
$1,250,000 and was granted the exclusive right to act as the investment
banking/financial advisor to SDG, Inc. and all of its subsidiaries and
affiliates.
SDG, Inc. is a development stage company which specializes in creating new
technology-specific companies that are dedicated to the clinical and commercial
development of proprietary, targeted liposomal delivery systems for
pharmaceutical therapies and consumer product ingredients. SDG, Inc.'s lipid
vesicles are protected by numerous U.S. and related foreign patents.
The Company has also purchased $350,000 of convertible preferred and common
stock in AMDG, Inc. ("AMDG"), a majority owned subsidiary of SDG, Inc. AMDG is a
development stage pharmaceutical company focused on the clinical development of
new therapies for the treatment of both Type I and Type II diabetes and has
received from SDG, Inc. a worldwide, exclusive, royalty-free license to certain
patented technology. AMDG raised $3.7 million of equity through a private
placement in December 1997.
In November 1993, the Company acquired 51% of the issued and outstanding common
stock of Augustine Asset Management, Inc. ("Augustine"), a Florida based
investment advisory firm. On October 4, 1996, the Company sold its entire
interest in Augustine, to Augustine.
In August 1988, the Company acquired Carteret Bancorp Inc. Carteret Bancorp
Inc., through its principal wholly owned subsidiary, Carteret Savings Bank, FA
("Carteret"), was principally engaged in retail and consumer banking, and
mortgage banking including mortgage servicing. On December 4, 1992, the Office
of Thrift Supervision ("OTS") placed Carteret in receivership under the
management of the Resolution Trust Corporation ("RTC") and a new institution,
Carteret Federal Savings Bank, was established to assume the assets and certain
liabilities of Carteret. Following the seizure of Carteret, the Company was
deregistered as a savings and loan holding company by the OTS, although the OTS
retains jurisdiction for any regulatory violations prior to deregistration.
The Company's assets currently consist primarily of cash and cash equivalents
and investment securities.
The Company had 7 employees at December 31, 2000.
The Company's main source of non-operating revenue is interest income earned on
investment securities and cash equivalents. In order to maintain the principal
value of its assets, the Company has invested substantially all of its funds in
U.S. Treasury Bills and short-term money market funds. The Company continues to
evaluate a number of possible acquisitions, and is engaged in the management of
its remaining assets and liabilities, including the contingent and alleged
litigation liabilities, as described in Item 8 - Note 11 to the Company's
consolidated financial statements. The Company intends to aggressively contest
all pending and threatened litigation and contingencies, as well as pursue all
sources for contributions to settlements. In order to continue on a long-term
basis, the Company must both resolve its contingent and alleged liabilities by
prevailing upon or settling these claims for less than the amounts claimed and
generate profits by acquiring existing operations and/or by developing new
operations.
See Item 8 - Note 11 to the Company's consolidated financial statements for a
discussion of Supervisory Goodwill Litigation.
At December 31, 2000, the Company's liabilities, including reserves for
contingent and alleged liabilities, exceeded total recorded assets by
$24,097,000. The Company has significant alleged liabilities and is a defendant
in a number of lawsuits and governmental proceedings, the ultimate outcome of
which could have a material adverse effect on its financial condition and
results of operations. Because of the nature of the contingent and alleged
liabilities and the inherent difficulty in predicting the outcome of the
litigation and governmental proceedings, management is unable to predict whether
the Company's recorded reserves will be adequate or its resources sufficient to
satisfy its ultimate obligations. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties. For a discussion of the alleged liabilities, lawsuits and
proceedings, see Item 8 - Note 11 to the Company's consolidated financial
statements. Although the basis for the calculation of the litigation and
contingency reserves and the withholding obligation reserve are regularly
reviewed by the Company's management and outside legal counsel, the assessment
of these reserves includes an exercise of judgment and is a matter of opinion.
ITEM 2. PROPERTIES
The Company leases approximately 4,800 square feet for use as its executive
office at 51 Weaver Street, Building 2, Greenwich, CT 06831-5155.
The Company is currently in negotiations to purchase a 14,000 square feet office
building in Greenwich, CT for approximately $2,400,000. Approximately 3,000
square feet is expected to be used by the Company for its executive offices with
the remaining square footage leased to unaffiliated third parties.
ITEM 3. LEGAL PROCEEDINGS
The Company has significant alleged liabilities and is a defendant in a number
of lawsuits and governmental proceedings, the ultimate outcome of which could
have a material adverse effect on its financial condition and results of
operations. Because of the nature of the contingent and alleged liabilities and
the inherent difficulty in predicting the outcome of the litigation and
governmental proceedings, management is unable to predict whether the Company's
recorded reserves will be adequate or its resources sufficient to satisfy its
ultimate obligations. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of these
uncertainties. Although the basis for the calculation of the litigation and
contingency reserves and the withholding obligation reserve are regularly
reviewed by the Company's management and outside legal counsel, the assessment
of these reserves includes an exercise of judgment and is a matter of opinion.
At December 31, 2000, the litigation and contingency reserves were $1,746,000.
For a discussion of alleged liabilities, lawsuits and proceedings, see Item 8 -
Note 11 to the Company's consolidated financial statements.
In addition to the litigation and contingency reserves, the Company has a
withholding obligation reserve of $66,388,000 at December 31, 2000. For a
further discussion, see Item 8 - Note 11 - Legal Proceedings, Dispute with
Internal Revenue Service Withholding Obligations (Netherlands Antilles), to the
Company's consolidated financial statements.
See Item 8 - Note 11 to the Company's consolidated financial statements for a
discussion of Supervisory Goodwill Litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Executive Officers of the Registrant
Each executive officer is elected to serve in the executive officer capacity set
forth opposite his respective name until the next Annual Meeting of
Stockholders. The Company is not aware of any family relationships between any
of the executive officers or directors of the Company.
Set forth below is a list of executive officers of the Company at December 31,
2000:
Name Age Title
==== === ==========
Richard A. Bianco 53 Chairman, President and
Chief Executive Officer of
AmBase Corporation
John P. Ferrara 39 Vice President, Chief Financial Officer
and Controller of AmBase Corporation
Mr. Bianco was elected a director of the Company in January 1991, and has served
as President and Chief Executive Officer of the Company since May 1991. On
January 26, 1993, Mr. Bianco was elected Chairman of the Board of Directors of
the Company. He served as Chairman, President and Chief Executive Officer of
Carteret, then a subsidiary of the Company, from May 1991 to December 1992.
Mr. Ferrara was elected to the position of Vice President, Chief Financial
Officer and Controller of the Company in December 1995, having previously served
as Acting Chief Financial Officer, Treasurer and Assistant Vice President and
Controller since January 1995; as Assistant Vice President and Controller from
January 1992 to January 1995; and as Manager of Financial Reporting from
December 1988 to January 1992.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Common Stock of the Company trades through one or more market-makers, with
quotations made available in the "pink sheets" published by the National
Quotation Bureau, Inc. ("Pink Sheets"), under the symbol ABCP. The sales prices
per share for the Company's Common Stock represent the range of the reported
high and low bid quotations as indicated in the Pink Sheets or as communicated
orally to the Company by market-makers. Such prices reflect interdealer prices,
without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
2000 1999
============================== ==============================
High Low High Low
==== === ==== ===
First Quarter....................... $ 1.00 $ 0.75 $ 2.77 $ 2.18
Second Quarter...................... 0.93 0.65 2.49 1.08
Third Quarter....................... 0.91 0.64 1.25 0.83
Fourth Quarter...................... 0.90 0.54 1.12 0.80
As of January 31, 2001, there were approximately 17,700 beneficial owners of the
Company's Common Stock. No dividends were declared or paid on the Company's
Common Stock in 2000 or 1999. The Company does not intend to declare or pay
dividends in the foreseeable future.
For information concerning the Company's stockholder rights plan, see Item 8 -
Note 5 to the Company's consolidated financial statements.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with the Company's
consolidated financial statements included in Item 8 of this Form 10-K. The
consolidated statements of operations, for the periods ended prior to the
October 4, 1996 sale of Augustine Asset Management, Inc. were retroactively
reclassified to reflect their operations as discontinued operations.
Years ended December 31
==================================================================
(in thousands, except per share data) 2000 1999 1998 1997 1996
==== ==== ==== ==== ====
Interest income, net........................ $ 2,795 $ 2,166 $ 2,430 $ 2,661 $ 2,641
Income (loss) from continuing operations,
before income taxes...................... 5,379 (4,280) 423 (1,275) 6,636
Income tax (expense) benefit................ (205) (235) (242) 191 7,189
Income (loss) from continuing operations ... 5,174 (4,515) 181 (1,084) 13,825
Income from discontinued investment
management operations, net of income taxes - - - - 207
Net income (loss)........................... $ 5,174 $ (4,515) $ 181 $(1,084) $ 14,032
Earnings per common share - basic
Income (loss) from continuing operations.... $ 0.11 $ (0.10) $ - $ (0.02) $ 0.31
Income (loss) from discontinued operations.. - - - - -
----------- ----------- ----------- ----------- -----------
Net income (loss)........................... $ 0.11 $ (0.10) $ - $ (0.02) $ 0.31
====== ====== ====== ====== ======
Earnings per common share - assuming dilution
Income (loss) from continuing operations.... $ 0.11 $ (0.10) $ - $ (0.02) $ 0.30
Income (loss) from discontinued operations.. - - - - -
----------- ----------- ----------- ----------- -----------
Net income (loss)........................... $ 0.11 $ (0.10) $ - $ (0.02) $ 0.30
====== ====== ====== ====== ======
Dividends................................... - - - - -
====== ====== ====== ====== ======
Total assets................................ $ 53,102 $ 47,678 $ 51,638 $64,270 $ 66,229
Total stockholders' equity.................. (24,097) (29,424) (25,000) (25,181) (24,097)
====== ====== ====== ====== ======
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the consolidated financial
statements and related notes which are contained in Item 8, herein.
CONTINUING OPERATIONS
Financial Condition
The Company's assets at December 31, 2000 aggregated $53,102,000, consisting
principally of cash and cash equivalents of $4,844,000 and investment securities
of $46,547,000. At December 31, 2000, the Company's liabilities, including
reserves for contingent and alleged liabilities, as further described in Item 8
- - Note 11 to the Company's consolidated financial statements, exceeded total
recorded assets by $24,097,000.
In June 2000 the Company entered into a settlement agreement with Zurich SF
Holdings LLC (f/k/a Reorganized Home Holdings, Inc.)("SF Holdings") settling the
disputed claims relating to the April 1999 complaint the Company filed in the
Supreme Court of New York. Pursuant to the settlement agreement, the Company
received, among other things, net proceeds of $8,250,000 from SF Holdings. In
addition, an affiliate of SF Holdings deposited $9,500,000 in an interest
bearing escrow account (the "Escrow Account") to be used to pay 50% of certain
expenses and/or withholding obligations, if any, up to the amount in the Escrow
Account in connection with the dispute with the Internal Revenue Service ("IRS")
over the Netherlands Antilles Withholding Obligation Issue. Upon final
resolution of the Netherlands Antilles Withholding Obligation Issue with the IRS
and payment of outstanding expenses, the residual of the Escrow Account, if any,
will be delivered to an affiliate of SF Holdings.
In June 1998, the Company paid $12,700,000 to the IRS for tax and estimated
interest to be applied to the Company's Fresh Start tax liability which related
to a 1987 tax dispute with the IRS. This amount was previously reserved for as
part of the Company's income tax reserves account. See Item 8 - Note 9 for a
more complete discussion regarding the Company's payment to the IRS in
connection with the Fresh Start tax proceeding and utilization of net operating
loss carryforwards.
Pursuant to the Home Holdings Revised Third Amended and Restated Plan of
Reorganization (the "Revised Plan"), on July 30, 1998 the Company received
$15,200,000 in full satisfaction of all the Company's claims relating to Home
Holdings other than certain disputed claims which were settled in June 2000 as
further discussed above.
The cash needs of the Company in 2000 were principally satisfied by proceeds
received in connection with the SF Holdings litigation settlement further
described above, and interest income received on investment securities and cash
equivalents. Management believes that the Company's cash resources are
sufficient to continue operations for 2001. Because of the nature of the
contingent and alleged liabilities described in Item 8 - Note 11 to the
Company's consolidated financial statements, the Company is unable to predict
whether it will have the ability to generate sufficient resources to satisfy its
ultimate obligations. For the year ended December 31, 2000, cash of $2,590,000
was provided by operating activities, mainly due to the receipt of funds in
connection with the SF Holdings litigation settlement offset by the payment of
expenses, payment of other liabilities, and payments charged against litigation
and contingency reserves.
The cash needs of the Company in 1999 were principally satisfied by interest
income received on investment securities and cash equivalents, and the Company's
current financial resources. Because of the nature of the contingent and alleged
liabilities described in Item 8 - Note 11 to the Company's consolidated
financial statements, the Company is unable to predict whether it will have the
ability to generate sufficient resources to satisfy its ultimate obligations.
For the year ended December 31, 1999, cash of $6,120,000 was used by operating
activities, including the payment of expenses, payment of other liabilities and
payments charged against litigation and contingency reserves, partially offset
by the receipt of interest income.
The cash needs of the Company in 1998 were principally satisfied by interest
income received on investment securities and cash equivalents, the Company's
current financial resources and the $15,200,000 received pursuant to the Home
Holdings Revised Plan. For the year ended December 31, 1998, cash of $14,892,000
was used by operating activities, including the payment of $12,700,000 to the
Internal Revenue Service ("IRS") for the Company's Fresh Start tax liability,
the payment of operating expenses and payments charged against the litigation
and contingency reserve partially offset by interest income, and the receipt of
amounts received pursuant to the Home Holdings Revised Plan.
Except for the possible purchase of an office building, as more fully discussed
in Item 8 - Note 10, to the Company's consolidated financial statements, there
are no material commitments for capital expenditures as of December 31, 2000.
Inflation has had no material impact on the business and operations of the
Company.
The Company continues to evaluate a number of possible acquisitions, and is
engaged in the management of its remaining assets and liabilities, including the
contingent and alleged and litigation liabilities described in Item 8 - Note 11
to the Company's consolidated financial statements. Extensive discussions and
negotiations are ongoing with respect to certain of these matters. The Company
intends to aggressively contest all pending and threatened litigation and
contingencies, as well as pursue all sources for contributions to settlements.
In order to continue on a long-term basis, the Company must both resolve its
contingent and alleged liabilities by prevailing upon or settling these claims
for less than the amounts claimed, and generate profits by acquiring existing
operations and/or by developing new operations.
See Item 8 - Note 11 to the Company's consolidated financial statements for a
discussion of Supervisory Goodwill Litigation.
Management of the Company continually reviews the likelihood of liability and
associated costs of pending and threatened litigation. At December 31, 2000, the
litigation and contingency reserves were $1,746,000. For a discussion of alleged
withholding obligation reserve, alleged liabilities, lawsuits and proceedings,
see Item 8 - Note 11 to the Company's consolidated financial statements.
In addition to the litigation and contingency reserves, the Company had a
withholding obligation reserve of $66,388,000 at December 31, 2000. For a
further discussion, see Item 8 - Note 11 - Legal Proceedings, Dispute with
Internal Revenue Service over Withholding Obligations (Netherlands Antilles), to
the Company's consolidated financial statements.
As noted above, the Company has significant alleged liabilities and is a
defendant in a number of lawsuits and governmental proceedings, the ultimate
outcome of which could have a material adverse effect on its financial condition
and results of operations. Because of the nature of the contingent and alleged
liabilities and the inherent difficulty in predicting the outcome of litigation
and governmental proceedings, management is unable to predict whether the
Company's recorded reserves will be adequate or its resources sufficient to
satisfy its ultimate obligations. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties. For a discussion of the alleged liabilities, lawsuits and
proceedings, see Item 8 - Note 11 to the Company's consolidated financial
statements. Although the basis for the calculation of the litigation and
contingency reserves and withholding obligation reserve are regularly reviewed
by the Company's management and outside legal counsel, the assessment of these
reserves includes an exercise of judgment and is a matter of opinion.
In connection with the liquidation of City Investing Company ("City") the
Company, among others, contractually assumed certain tax liabilities of City,
which, prior to September 1985, owned all the outstanding shares of Common Stock
of the Company. Other liabilities were assumed by, among others, City Investing
Company Liquidating Trust (the "Trust"). The only issue that remains in dispute
between City and the IRS is with respect to obligations for the withholding of
taxes in connection with a Netherlands Antilles finance subsidiary of City (the
"Withholding Issue").
With respect to the Withholding Issue, in connection with a Netherlands Antilles
finance subsidiary of City, on May 11, 1995, the IRS issued a Notice of
Deficiency for the withholding of tax on interest payments for the years 1979
through 1985. In the Notice of Deficiency, the IRS contends that City's wholly
owned Netherlands Antilles finance subsidiary should be disregarded for tax
purposes. The Company, on behalf of City, vigorously contested the IRS's
position in accordance with the IRS's internal appeals procedures. In January
1992, the National Office of the IRS issued technical advice supporting the
auditing agent's position. In October 1992, the Company appealed this technical
advice to the National Office. The National Office advised the Company that it
expected to issue technical advice supporting the auditing agent's position,
whereupon the Company advised the IRS that it was withdrawing its technical
advice request.
On June 30, 1995, the Company, on behalf of City, filed a petition in the United
States Tax Court ("Tax Court") contesting the Notice of Deficiency. The IRS
filed its answer on August 23, 1995. The Company filed a motion for summary
judgment in its favor on February 13, 1996. On April 17, 1996, the IRS filed a
Notice of Objection to the Company's motion for summary judgment. The Tax Court
requested, and the Company filed, on July 3, 1996, a reply to the IRS's Notice
of Objection. On September 19, 1996, the Court denied the Company's motion for
summary judgment without prejudice. Based on the Tax Court's examination of the
record and the status of the discovery process, the Tax Court concluded that
summary adjudication at that time was inappropriate. The Tax Court directed the
parties to engage in full and complete discovery as expeditiously as possible. A
trial was held in this case on March 24, 1997, after which the Judge asked the
IRS and the Company to submit post-trial briefs, which were submitted to the Tax
Court in August 1997. If the IRS were to prevail on this issue, the Company
could be liable for City's withholding obligation plus interest in excess of the
Company's financial resources. A significant factor in determining the amount of
the Company's ultimate liability for this issue is whether pursuant to the
contractual arrangement between the Company and City, the Company is primarily
liable for the withholding obligation and interest. See Item 8 - Note 11 - Legal
Proceedings, AmBase Corporation v. City Investing Company Liquidating Trust et
al., to the Company's consolidated financial statements.
In a case dealing with a similar withholding issue, the Tax Court ruled in favor
of the taxpayer, Northern Indiana Public Service Co. ("Northern Indiana"), in
November 1995. The Tax Court rejected the IRS's contention that interest paid to
Northern Indiana's foreign subsidiary was subject to United States withholding
of tax. The IRS appealed this decision (Northern Indiana Public Service Co. v.
Commissioner) to the United States Court of Appeals for the 7th Circuit (the
"Appeals Court"). In June 1997 the Appeals Court affirmed the Tax Court's ruling
in favor of Northern Indiana. Although the Appeals Court decision in the
Northern Indiana case could be beneficial to the case involving City, it is not
necessarily indicative of the ultimate result of the final settlement of the
Netherlands Antilles issue involving City.
Based on an evaluation of the IRS's contention, counsel has advised the Company
that, although the outcome in litigation can by no means be assured, the Company
has a very strong case and should prevail. Notwithstanding counsel's opinion and
the Tax Court's ruling in the Northern Indiana case, it is not possible at this
time to determine the final disposition of this issue, when the issues will be
resolved, or their final financial effect. A final disposition of this issue in
the Company's favor would have a material positive effect on the Company's
Consolidated Statement of Operations and Financial Condition.
The Company has a reserve for the withholding issue of $66,388,000 at December
31, 2000. For a further discussion, see Item 8 - Note 11 - Legal
Proceedings, Dispute with Internal Revenue Service over Withholding Obligations
(Netherlands Antilles), to the Company's consolidated financial statements.
Results of Operations
Summarized financial information for the operations of the Company for the years
ended December 31 is as follows:
(in thousands) 2000 1999 1998
==== ==== ====
Operating expenses:
Compensation and benefits..................................... $ 3,507 $ 3,605 $ 3,117
Professional and outside services............................. 2,051 2,707 1,128
Insurance..................................................... 60 69 82
Occupancy..................................................... 91 100 86
Other operating............................................... 143 159 142
-------- -------- --------
5,852 6,640 4,555
-------- -------- --------
Operating loss................................................ (5,852) (6,640) (4,555)
-------- -------- --------
Interest income............................................... 2,795 2,166 2,430
Other income - litigation settlement.......................... 8,250 - -
Other income.................................................. 186 194 2,548
-------- -------- --------
Income (loss) before income taxes............................. 5,379 (4,280) 423
Income tax expense............................................ (205) (235) (242)
-------- -------- --------
Net income (loss)............................................. $ 5,174 $ (4,515) $ 181
===== ===== =====
The Company's main source of non-operating revenue is interest income earned on
investment securities and cash equivalents. The Company's management expects
that operating cash needs in 2001 will be met principally by the Company's
current financial resources and the receipt of non-operating revenue consisting
of interest income earned on investment securities and cash equivalents.
The Company recorded net income of $5,174,000 or $0.11 per share, for the year
ended December 31, 2000. As further described above the December 31, 2000
results includes $8,250,000 of other income principally representing net
proceeds received in connection with the Company's litigation settlement with
Zurich SF Holdings LLC, ("SF Holdings"). Excluding this other income the Company
would have reported a net loss of $3,076,000 for the year ended December 31,
2000.
The Company recorded a net loss of $4,515,000 for the year ended December 31,
1999. As further detailed below the 1999 net loss reflects an increase in 1999
compared with 1998 of $1,579,000 of professional and outside service fees as a
result of Supervisory Goodwill litigation expenses.
For the year ended December 31, 1998 the Company recorded net income of
$181,000. As further described in Financial Condition, above, 1998 includes
$2,548,000 of non-recurring other income, principally attributable to the
receipt of $2,500,000 in connection with the Home Holdings Revised Plan.
Excluding the non-recurring other income, the Company would have recorded a net
loss of $2,367,000 for the year ended December 31, 1998.
Compensation and benefits were $3,507,000 in 2000, $3,605,000 in 1999 and
$3,117,000 in 1998. The decrease in 2000 compared to 1999 is primarily due to a
decrease in Year 2000 incentive compensation accrued in 2000 and paid in 2001.
The increase of $488,000 in 1999, compared with 1998 is primarily due to
increased incentive compensation and supplemental retirement plan accruals.
Professional and outside services decreased to $2,051,000 in 2000, compared to
$2,707,000 in 1999. The amounts in the 2000 periods are comprised of expenses
relating to the Supervisory Goodwill litigation although at a lower level
compared to 1999, and expenses incurred relating to the litigation settlement
with SF Holdings. The amounts in the 1999 periods are principally comprised of
expenses relating to the Supervisory Goodwill litigation. The increase in 1999,
compared to 1998, was due to an increase in Supervisory Goodwill litigation
expenses as a result of litigation discovery expenses and the preparation of the
Company's Summary Judgment Motion as further discussed in Item 8 - Note 11,
offset to some effect by a reduction of legal fees attributable to the
Home Holdings, Inc. bankruptcy case, which were incurred in 1998. Expenses for
professional and outside services in 2000, 1999 and 1998 do not include costs
associated with defending pending and threatened litigation which were
previously reserved for and are charged against the litigation and contingency
reserves when paid.
Insurance expenses decreased in 2000, compared to 1999, due to management's
renegotiation of insurance programs.
Occupancy expenses were $91,000 in 2000, $100,000 in 1999 and $86,000 in 1998.
The increase in 1999 compared to 1998 is the result of an increase in occupancy
related maintenance expenses.
Interest income was $2,795,000 in 2000, $2,166,000 in 1999, and $2,430,000 in
1998. The increase in 2000 compared to the 1999 period, was attributable to a
higher average level of investment securities and an increased yield on cash
equivalents and investment securities. The decrease in 1999 compared to 1998, is
the result of a lower average level of investment securities.
The additional other income of $186,000 in 2000 and $194,000 in 1999 is
primarily attributable to the collection by an inactive subsidiary of a
receivable previously considered uncollectible. Other income in 1998 of
$2,548,000 is principally attributable to the receipt of $2,500,000 received in
connection with the Home Holdings Revised Plan.
The 2000, 1999 and 1998 income tax provisions of $205,000, $235,000 and
$242,000, respectively, are principally attributable to state and local taxes.
A reconciliation between income taxes computed at the statutory federal rate and
the provision for income taxes is included in Item 8 - Note 9 to the Company's
consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company holds short-term investments as a source of liquidity. The Company's
interest rate sensitive investments at December 31, 2000 and 1999 with maturity
dates of less than one year consist of the following:
2000 1999
========================== =========================
Carrying Fair Carrying Fair
Value Value Value Value
----------- ----------- ------------ -----------
(in thousands)
U.S. Treasury Bills.........................................$ 46,547 $ 46,595 $ 43,260 $ 43,259
======== ======== ========= =========
Weighted average interest rate............................. 5.80% 4.81%
======= =======
The Company's current policy is to minimize the interest rate risk of its
short-term investments by investing in U.S. Treasury Bills with maturities of
less than one year. There were no significant changes in market exposures or the
manner in which interest rate risk is managed during the year.
STOCKHOLDER INQUIRIES
Stockholder inquiries, including requests for the following: (i) change of
address; (ii) replacement of lost stock certificates; (iii) Common Stock name
registration changes; (iv) Quarterly Reports on Form 10-Q; (v) Annual Reports on
Form 10-K; (vi) proxy material; and (vii) information regarding stockholdings,
should be directed to:
American Stock Transfer and Trust Company
40 Wall Street, 46th Floor
New York, NY 10005
Attention: Shareholder Services
(800) 937-5449 or (718) 921-8200
In addition, the Company's public reports, including Quarterly Reports on Form
10-Q, Annual Reports on Form 10-K and Proxy Statements, can be obtained through
the Securities and Exchange Commission EDGAR Database over the World Wide Web at
www.sec.gov.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
AmBase Corporation
In our opinion, the accompanying consolidated Balance Sheets and the related
consolidated Statements of Operations, of Changes in Stockholders' Equity, and
of Cash Flows present fairly, in all material respects, the financial position
of AmBase Corporation and its subsidiaries (the "Company") at December 31, 2000
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis our opinion.
The accompanying financial statements include a withholding obligation
reserve relating to a significant issue discussed in Note 11. Final resolution
of this issue is dependent upon future events, which may result in amounts more
or less than those presented. The ultimate outcome of this issue cannot
presently be determined.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, substantial operations of the Company have been
discontinued, and substantial contingencies exist against the Company in various
lawsuits and proceedings, which are discussed in Note 11 to the financial
statements and the second paragraph of this report. The Company has a net
capital deficiency of approximately $24,097,000 at December 31, 2000. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. It will be necessary for the Company to resolve the contingent
liabilities by prevailing upon or settling these claims at amounts less than the
claims and the amounts recorded and to generate, through acquisition or start
up, profitable operations to continue on a long-term basis. See Note 1 for
further discussion of management's plans. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
PricewaterhouseCoopers LLP
New York, New York
March 12, 2001
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31
(in thousands, except per share data) 2000 1999 1998
==== ==== ====
Operating expenses:
Compensation and benefits..................................... $ 3,507 $ 3,605 $ 3,117
Professional and outside services............................. 2,051 2,707 1,128
Insurance..................................................... 60 69 82
Occupancy..................................................... 91 100 86
Other operating............................................... 143 159 142
-------- -------- --------
5,852 6,640 4,555
-------- -------- --------
Operating loss................................................ (5,852) (6,640) (4,555)
-------- -------- --------
Interest income............................................... 2,795 2,166 2,430
Other income - litigation settlement.......................... 8,250 - -
Other income.................................................. 186 194 2,548
-------- -------- --------
Income (loss) before income taxes............................. 5,379 (4,280) 423
Income tax expense ........................................... (205) (235) (242)
-------- -------- --------
Net income (loss)............................................. $ 5,174 $ (4,515) $ 181
===== ===== =====
Earnings per common share:
Net income (loss) - basic..................................... $ 0.11 $ ( 0.10) $ -
Net income (loss) - assuming dilution......................... 0.11 ( 0.10) -
===== ===== =====
Dividends..................................................... $ - $ - $ -
===== ===== =====
Average shares outstanding.................................... 46,209 44,724 44,534
===== ===== =====
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31
(in thousands) 2000 1999
==== ====
Assets:
Cash and cash equivalents....................................................... $ 4,844 $ 2,646
Investment securities - held to maturity
(market value $46,595 and $43,259, respectively)............................ 46,547 43,260
Investment in SDG, Inc. at cost................................................. 1,250 1,250
Other assets.................................................................... 461 522
-------- --------
Total assets.................................................................... $ 53,102 $ 47,678
===== =====
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued liabilities........................................ $ 1,889 $ 1,902
Supplemental retirement plan.................................................... 6,033 5,545
Postretirement welfare benefits................................................. 1,053 1,178
Other liabilities............................................................... 90 106
Litigation and contingency reserves............................................. 1,746 1,983
Withholding obligation reserve.................................................. 66,388 66,388
-------- --------
Total liabilities............................................................... 77,199 77,102
-------- --------
Commitments and contingencies................................................... - -
-------- --------
Stockholders' equity:
Common stock.................................................................... 463 455
Paid-in capital................................................................. 547,940 547,795
Accumulated deficit............................................................. (571,853) (577,027)
Treasury stock.................................................................. (647) (647)
-------- --------
Total stockholders' equity...................................................... (24,097) (29,424)
-------- --------
Total liabilities and stockholders' equity...................................... $ 53,102 $ 47,678
===== =====
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31
Common Paid-In Accumulated Treasury
(in thousands) Stock Capital Deficit Stock Total
======= ===== ========= ====== ====
December 31, 1997......... $ 447 $ 547,712 $ (572,693) $ (647) $(25,181)
Net income................ - - 181 - 181
--------- ---------- ------------ ---------- ---------
December 31, 1998......... 447 547,712 (572,512) (647) (25,000)
Stock options exercised 8 83 - - 91
Net loss.................. - - (4,515) - (4,515)
--------- ---------- ----------- ---------- ---------
December 31, 1999......... $ 455 $ 547,795 $ (577,027) $ (647) $ (29,424)
Stock options exercised 8 145 - - 153
Net income................ - - 5,174 - 5,174
--------- ---------- ----------- ---------- ---------
December 31, 2000......... $ 463 $ 547,940 $ (571,853) $ (647) $ (24,097)
====== ====== ======= ====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31
(in thousands) 2000 1999 1998
==== ==== ====
Cash flows from operating activities:
Net income (loss)........................................................ $ 5,174 $ (4,515) $ 181
Adjustments to reconcile net income (loss) to net cash provided
(used by) operating activities:
Other assets............................................................. 36 48 86
Accounts payable and accrued liabilities................................. (13) 260 92
Litigation and contingency reserves uses................................. (237) (93) (264)
Fresh Start tax payment.................................................. - - (12,700)
Accretion of discount - investment securities............................ (2,732) (2,133) (2,350)
Other, net............................................................... 362 313 63
-------- -------- --------
Net cash provided (used) by operating activities......................... 2,590 (6,120) (14,892)
-------- -------- --------
Cash flows from investing activities:
Maturities of investment securities - held to maturity................... 118,084 108,986 78,451
Purchases of investment securities - held to maturity.................... (118,639) (102,957) (78,947)
Purchases of investment securities - available for sale.................. - (250) -
Proceeds from Home Holdings, Inc. receivable............................. - - 12,708
Other, net............................................................... 10 10 18
-------- -------- --------
Net cash provided (used) by investing activities......................... (545) 5,789 12,230
-------- -------- --------
Cash flows from financing activities:
Stock options exercised.................................................. 153 91 -
-------- -------- --------
Net cash provided by financing activities................................ 153 91 -
-------- -------- --------
Net increase (decrease) in cash and cash equivalents..................... 2,198 (240) (2,662)
Cash and cash equivalents at beginning of year........................... 2,646 2,886 5,548
-------- -------- --------
Cash and cash equivalents at end of year................................. $ 4,844 $ 2,646 $ 2,886
===== ===== =====
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization
AmBase Corporation (the "Company") is a holding company which, through a wholly
owned subsidiary, owns a 6.3% ownership interest in SDG, Inc. The Company
previously held a majority ownership interest in Augustine Asset Management,
Inc. ("Augustine"), an investment advisor, and also previously owned a savings
bank and an insurance company, all of which have been designated as discontinued
operations, as further discussed below.
On December 4, 1992, Carteret Savings Bank, FA ("Carteret") was placed in
receivership by the Office of Thrift Supervision ("OTS").
On February 13, 1991, the Company sold its ownership interest in The Home
Insurance Company ("The Home") and its subsidiaries to Home Holdings, Inc.
("Home Holdings").
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. Substantial contingent and
alleged liabilities exist against the Company through various lawsuits and
proceedings, as described in Note 11. These factors raise substantial doubt
about the Company's ability to continue as a going concern. In order to continue
on a long-term basis, the Company must both resolve its contingent and alleged
liabilities by prevailing upon or settling these claims for less than the
amounts claimed, and generate profits by acquiring existing operations and/or by
developing new operations. The financial statements do not include adjustments
to the carrying value of assets and liabilities which might be necessary should
the Company not continue in operation. The Company continues to evaluate a
number of possible acquisitions, and is engaged in the management of its
remaining assets and liabilities, including the contingent and alleged
liabilities, as described in Note 11. The Company intends to aggressively
contest all pending and threatened litigation and governmental proceedings, as
well as pursue all sources for contributions to settlements. The Company's main
source of non-operating revenue is interest earned on investment securities and
cash equivalents. The Company's management expects that operating cash needs in
2001 will be met principally by the Company's current financial resources and
the receipt of non-operating revenue consisting of interest income earned on
investment securities and cash equivalents. Because of the nature of the
contingent and alleged liabilities and the inherent difficulty in predicting the
outcome of litigation and governmental proceedings, management is unable to
predict whether the Company's recorded reserves will be adequate or its
resources sufficient to satisfy its ultimate obligations. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties. For a discussion of the alleged
liabilities, lawsuits and governmental proceedings, see Note 11. Although the
basis for the calculation of the litigation and contingency reserves and
withholding obligation reserve are regularly reviewed by the Company's
management and outside legal counsel, the assessment of these reserves includes
an exercise of judgment and is a matter of opinion.
See Note 11 for a discussion of Supervisory Goodwill Litigation.
Note 2 - Summary of Significant Accounting Policies
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP"). Certain reclassifications
have been made to the 1999 and 1998 consolidated financial statements to conform
with the 2000 presentation.
Use of estimates in the preparation of financial statements:
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions, that it deems reasonable, that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from such estimates and assumptions.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Principles of consolidation:
The consolidated financial statements are comprised of the accounts of the
Company and its majority owned subsidiaries. All material intercompany
transactions and balances have been eliminated. Investments in companies in
which ownership interest is less than 20% are accounted for using the cost
method.
Cash and cash equivalents:
Highly liquid investments, consisting principally of funds held in short-term
money market accounts, are classified as cash equivalents.
Investment securities:
Securities that the Company has both the positive intent and ability to hold to
maturity are classified as investment securities - held to maturity and are
carried at amortized cost. Investment securities - available for sale, which are
those securities that may be sold prior to maturity, are carried at fair value,
with any net unrealized gains or losses reported in a separate component of
stockholders' equity, net of deferred taxes.
Interest and dividends on investment securities are recognized in the Statement
of Operations when earned. Realized gains and losses on the sale of investment
securities - available for sale are calculated using the first-in/first-out
basis for determining the cost basis of the securities. The fair value of
publicly traded investment securities is determined by reference to current
market quotations.
Income taxes:
The Company and its domestic subsidiaries file a consolidated federal income tax
return. The Company recognizes both the current and deferred tax consequences of
all transactions that have been recognized in the financial statements,
calculated based on the provisions of enacted tax laws, including the tax rates
in effect for current and future years. Net deferred tax assets are recognized
immediately when a more likely than not criterion is met; that is, unless a
greater than 50% probability exists that the tax benefits will actually be
realized sometime in the future. At the present time, management has no basis to
conclude that realization is more likely than not.
Earnings per share:
Basic and fully diluted earnings per share ("EPS") are computed by dividing net
income (loss) by the weighted average number of common and common equivalent
shares outstanding.
Stock-based compensation:
The Company adopted the disclosure requirements of Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("Statement 123") and continues to
account for stock compensation using APB Opinion 25, "Accounting for Stock
Issued to Employees" ("APB 25"), making proforma disclosures of net income and
earnings per share as if the fair value based method had been applied. For a
further discussion, see Note 8.
Notes to Consolidated Financial Statements (continued)
Note 3 - Investment Securities
Investment securities - held to maturity consist of U.S. Treasury Bills with
original maturities of one year or less and are carried at amortized cost based
upon the Company's intent and ability to hold these investments to maturity.
Investment securities at December 31 consist of the following:
2000 1999
========================================= ==========================================
Cost or Cost or
Carrying Amortized Fair Carrying Amortized Fair
(in thousands) Value Cost Value Value Cost Value
====== ======== ===== ====== ======== =====
Held to Maturity:
U.S. Treasury Bills $ 46,547 $ 46,547 $ 46,595 $ 43,260 $ 43,260 $ 43,259
===== ===== ===== ===== ===== =====
The gross unrealized gains and losses on investment securities at December 31,
consist of the following:
(in thousands) 2000 1999
==== ====
Held to Maturity - Gross unrealized gains (losses).................................. $ 48 $ (1)
==== ====
Other investment securities at December 31, 2000 and 1999 consist of convertible
preferred stock and/or common stock in AMDG, Inc., which were purchased through
private placements, are classified as other assets, and are carried at cost
which approximates market value; $350,000 at December 31, 2000 and 1999.
Notes to Consolidated Financial Statements (continued)
Note 4 - Earnings Per Share
The calculation of basic earnings per share and dilutive earnings per share,
including the effect of dilutive securities, for the years ended December 31, is
as follows:
2000
====================================================
Income Shares Per Share
(in thousands, except per share data) (Numerator) (Denominator) Amount
======== ============ ======
Basic earnings per share:
Net income............................................. $ 5,174 46,209 $ 0.11
===== =====
Effect of Dilutive Securities:
Assumed stock option exercise.......................... 55
----------
Diluted earnings per share:
Net income and assumed conversions..................... $ 5,174 46,264 $ 0.11
===== ===== =====
1999
====================================================
Loss Shares Per Share
(in thousands) (Numerator) (Denominator) Amount
========== =========== =========
Basic earnings per share:
Net loss............................................... $ (4,515) 44,724 $ ( 0.10)
====== ======
Effect of Dilutive Securities:
Assumed stock option exercise.......................... -
----------
Diluted earnings per share:
Net loss and assumed conversions....................... $ (4,515) 44,724 $ ( 0.10)
====== ====== ======
1998
====================================================
Income Shares Per Share
(in thousands) (Numerator) (Denominator) Amount
========== ============ =========
Basic earnings per share:
Net income............................................. $ 181 44,534 $ -
===== =====
Effect of Dilutive Securities:
Assumed stock option exercise.......................... 1,697
----------
Diluted earnings per share:
Net income and assumed conversions..................... $ 181 46,231 $ -
===== ===== =====
Notes to Consolidated Financial Statements (continued)
Note 5 - Stockholders' Equity
Authorized capital stock consists of 50,000,000 shares of cumulative preferred
stock, $0.01 par value, and 200,000,000 shares of Common Stock, $0.01 par value.
Changes in the outstanding shares of Common Stock of the Company are as follows:
2000 1999 1998
========= ======== ========
Balance at beginning of year.......................... 45,348,519 44,533,519 44,533,519
Issuance of common shares............................. 860,000 815,000 -
------------ ------------ ------------
Balance at end of year 46,208,519 45,348,519 44,533,519
=========== ============ ============
Common Stock balances exclude 126,488 treasury shares at December 31, 2000, 1999
and 1998, carried at an average cost of $5.12 per share aggregating
approximately $647,000.
The Company issued 860,000 and 815,000 of previously authorized common shares
during January 2000 and October 1999, respectively, in connection with the
exercise of employee stock options.
At December 31, 2000, there were 5,185,000 common shares reserved for issuance
under the Company's stock option and other employee benefit plans.
Stockholder Rights Plan:
On January 29, 1986, the Company's Board of Directors declared a dividend
distribution of one right for each outstanding share of Common Stock of the
Company. The rights, as amended, which entitle the holder to purchase from the
Company a common share at a price of $75.00, are not exercisable until either a
person or group of affiliated persons acquires 25% or more of the Company's
outstanding common shares or upon the commencement or disclosure of an intention
to commence a tender offer or exchange offer for 20% or more of the common
shares. The rights are redeemable by the Company at $0.05 per right at any time
until the earlier of the tenth day following an accumulation of 20% or more of
the Company's shares by a single acquirer or group, or the occurrence of certain
Triggering Events (as defined in the Stockholder Rights Plan). In the event the
rights become exercisable and, thereafter, the Company is acquired in a merger
or other business combination, or in certain other circumstances, each right
will entitle the holder to purchase from the surviving corporation, for the
exercise price, Common Stock having a market value of twice the exercise price
of the right. The rights are subject to adjustment to prevent dilution. In
November 2000, the Board of Directors approved an amendment to the Company's
existing Shareholder Rights Plan (the "Plan") to extend the expiration date of
the Plan to February 10, 2006 from February 10, 2001.
Notes to Consolidated Financial Statements (continued)
Note 6 - Pension and Savings Plans
The Company sponsors a non-qualified supplemental retirement plan ("Supplemental
Plan") under which only one current executive officer and certain former
officers of the Company are participants. The cost of the Supplemental Plan is
actuarially determined and is accrued but not funded.
Pension expense for the Supplemental Plan for the years ended December 31 was as
follows:
(in thousands) 2000 1999 1998
==== ==== ====
Service cost of current period................................ $ 469 $ 470 $ 337
Interest cost on projected benefit obligation................. 468 400 337
Amortization of unrecognized losses........................... 11 56 -
-------- -------- --------
$ 948 $ 926 $ 674
===== ===== =====
A reconciliation of the changes in the projected benefit obligation from the
beginning of the year to the end of the year is as follows:
(in thousands) 2000 1999
==== ====
Projected benefit obligation at beginning of year............................... $ 5,824 $ 6,153
Service cost.................................................................... 469 470
Interest cost................................................................... 468 400
Actuarial (gain) loss, including effect of change in assumptions................ 869 (739)
Benefits paid................................................................... (460) (460)
------- --------
Projected benefit obligation at end of year..................................... $ 7,170 $ 5,824
====== ======
Accrued pension costs for the Supplemental Plan at December 31, and the major
assumptions used to determine these amounts, are summarized below:
(dollars in thousands) 2000 1999
==== ====
Actuarial present value of benefit obligations:
Accumulated benefit obligations, fully vested................................... $ 5,540 $ 4,941
===== =====
Projected benefit obligation for service rendered to date....................... $ 7,170 $ 5,824
Unrecognized net loss........................................................... (1,137) (279)
-------- --------
Accrued pension costs........................................................... $ 6,033 $ 5,545
===== =====
Major assumptions:
Pre-retirement and postretirement discount rate................................. 7.5% 7.75%
Rate of increase in future compensation......................................... 6.0% 6.0%
===== =====
Notes to Consolidated Financial Statements (continued)
The Company sponsors the AmBase 401(k) Savings Plan (the "Savings Plan"), which
is a "Section 401(k) Plan" within the meaning of the Internal Revenue Code of
1986, as amended (the "Code"). The Savings Plan permits eligible employees to
make contributions of up to 15% of salary, which are matched by the Company at a
percentage determined annually. The employer match is currently 100% of the
first 3% of the employee's salary eligible for deferral. Employee contributions
to the Savings Plan are invested at the employee's discretion, in various
investment funds. The Company's matching contributions are invested in the same
manner as the salary reduction contributions. The Company's matching
contributions to the Savings Plan, charged to expense, were $17,000, $25,000 and
$26,000 in 2000, 1999 and 1998, respectively. All contributions are subject to
maximum limitations contained in the Code.
Note 7 - Postretirement Benefits Other Than Pensions
The Company has assumed the obligation to provide a portion of retiree medical
and life insurance coverage to individuals who retired from City Investing
Company ("City"), which, prior to September 1985, owned all the outstanding
shares of Common Stock of the Company. The Company and its subsidiaries do not
provide postretirement benefits to employees currently retiring.
Retiree insurance coverage is provided to participants through group medical and
life insurance contracts. Retiree medical coverage provides supplemental
Medicare coverage for retirees and their eligible spouses. Life insurance is
provided to retirees at 25% of the participant's pre-retirement amount, not to
exceed $50,000. All participants are required to contribute a portion, which may
be adjusted, of the cost of their postretirement benefit coverage. The Company
does not pre-fund these plans and retains the right to modify or terminate these
plans in the future.
Net periodic postretirement benefit (income) expense for the years ended
December 31 was as follows:
(in thousands) 2000 1999 1998
==== ==== ====
Interest cost on accumulated postretirement benefit obligation....... $ 9 $ 14 $ 22
Amortization of prior service liability.............................. (82) (75) (66)
Amortization of unrecognized gain.................................... (42) (43) (41)
-------- -------- --------
Net periodic postretirement benefit (income) expense................. $ (115) $ (104) $ (85)
====== ====== ======
A reconciliation of the changes in the accumulated postretirement benefit
obligation from the beginning of the year to the end of the year is as follows:
(in thousands) 2000 1999
==== ====
Accumulated postretirement benefit obligation at beginning of year... $ 119 $ 219
Interest cost........................................................ 9 14
Amendments........................................................... (35) (68)
Actuarial gains, including effect of assumption changes.............. (13) (27)
Plan participant contributions....................................... 58 58
Benefit premiums paid................................................ (68) (77)
-------- --------
Accumulated postretirement benefit obligation at end of year......... $ 70 $ 119
===== =====
Notes to Consolidated Financial Statements (continued)
The accrued postretirement benefit liability at December 31 is summarized below:
(in thousands) 2000 1999
==== ====
Accumulated postretirement benefit obligation:
Retirees........................................................................ $ 70 $ 119
-------- --------
Unrecognized net gains.......................................................... 405 434
Unrecognized prior service liability............................................ 578 625
-------- --------
Accrued postretirement benefit liability........................................ $ 1,053 $ 1,178
===== =====
The accumulated benefit obligation for 2000, 1999 and 1998 was determined using
the projected unit credit method and a discount rate of 7.5%, 7.75% and 6.75%,
respectively. The health care cost trend rates were assumed to be 6% in 2000, 7%
in 1999, and 8% in 1998, gradually declining to 5.5% in 2001 and remaining at
that level, thereafter.
Assumed health care cost trend rates could have a significant effect on the
amounts reported. At December 31, 2000 a 1% change in the assumed health care
cost trend rates, while holding all other assumptions constant, would have the
following effects:
1% 1%
(in thousands) Increase Decrease
====== =======
Effect on net periodic postretirement benefit income................................ $ - $ -
Effect on accumulated postretirement benefit obligation............................. 4 (3)
====== ======
Note 8 - Incentive Plans
Under the Company's 1994 Senior Management Incentive Compensation Plan (the
"1994 Plan"), an executive officer of the Company whose compensation is required
to be reported to stockholders under the Securities Exchange Act of 1934 (the
"Participants") and who is serving as such at any time during the fiscal year as
to which an award is granted, may receive an award of a cash bonus ("Bonus"), in
an amount determined by the Personnel Committee of the Company's Board of
Directors (the "Committee") and payable from an annual bonus fund (the "Annual
Bonus Pool"). The Committee may award Bonuses under the 1994 Plan to
Participants not later than 120 days after the end of each fiscal year (the
"Reference Year").
If the Committee grants a Bonus under the 1994 Plan, the amount of the Annual
Bonus Pool will be an amount equal to the sum of (i) plus (ii), where:
(i) is ten percent (10%) of the amount by which the Company's Total
Stockholders' Equity, as defined, on the last day of a Reference Year increased
over the Company's Total Stockholders' Equity, as defined, on the last day of
the immediately preceding Reference Year; and
(ii) is five percent (5%) of the amount by which the Company's market
value, as defined, on the last day of the Reference Year increased over the
Company's market value on the last day of the immediately preceding Reference
Year.
Notes to Consolidated Financial Statements (continued)
Notwithstanding the foregoing, the 1994 Plan provides that in the event of a
decrease in either or both of items (i) and/or (ii) above, the Annual Bonus Pool
is determined by reference to the last Reference Year in which there was an
increase in such item. If the Committee determines within the 120-day time
period to award a Bonus, the share of the Annual Bonus Pool to be allocated to
each Participant shall be as follows: 45% of the Annual Bonus Pool shall be
allocated to the Company's Chief Executive Officer, and 55% of the Annual Bonus
Pool shall be allocated pro rata to each of the Company's Participants as
determined by the Committee. The Committee in its discretion may reduce the
percentage of the Annual Bonus Pool to any Participant for any Reference Year,
and such reduction shall not increase the share of any other Participant. The
1994 Plan is not the exclusive plan under which the Executive Officers may
receive cash or other incentive compensation or bonuses.
Under the Company's 1993 Stock Incentive Plan (the "1993 Plan"), the Company may
grant to officers and employees of the Company and its subsidiaries, stock
options ("Options"), stock appreciation rights ("SARs"), restricted stock awards
("Restricted Stock"), merit awards ("Merit Awards") and performance share awards
("Performance Shares"), through May 28, 2008. An aggregate of 5,000,000 shares
of the Company's Common Stock are reserved for issuance under the 1993 Plan
(upon the exercise of Options and Stock Appreciation Rights, upon awards of
Restricted Stock and Performance Shares); however, of such shares, only
2,500,000 shares in the aggregate shall be available for issuance for Restricted
Stock Awards and Merit Awards. Such shares shall be authorized but unissued
shares of Common Stock. Options may be granted as incentive stock options
("ISOs") intended to qualify for favorable tax treatment under Federal tax law
or as nonqualified stock options ("NQSOs"). SARs may be granted with respect to
any Options granted under the 1993 Plan and may be exercised only when the
underlying Option is exercisable. The 1993 Plan requires that the exercise price
of all Options and SARs be equal to or greater than the fair market value of the
Company's Common Stock on the date of grant of that Option. The term of any ISO
or related SAR cannot exceed ten years from the date of grant, and the term of
any NQSO cannot exceed ten years and one month from the date of grant. Subject
to the terms of the 1993 Plan and any additional restrictions imposed at the
time of grant, Options and any related SARs ordinarily will become exercisable
commencing one year after the date of grant. In the case of a "Change of
Control" of the Company (as defined in the 1993 Plan), Options granted pursuant
to the 1993 Plan may become fully exercisable as to all optioned shares from and
after the date of such Change in Control in the discretion of the Committee or
as may otherwise be provided in the grantee's Option agreement. Death,
retirement, resignation or absence for disability will not result in the
cancellation of any Options.
As a condition to any award of Restricted Stock or Merit Award under the 1993
Plan, the Committee may require a participant to pay an amount equal to, or in
excess of, the par value of the shares of Restricted Stock or Common Stock
awarded to him or her. Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered during a "Restricted Period", which in the case
of grants to employees shall not be less than one year from the date of grant.
The Restricted Period with respect to any outstanding shares of Restricted Stock
awarded to employees may be reduced by the Committee at any time, but in no
event shall the Restricted Period be less than one year. Except for such
restrictions, the employee as the owner of such stock shall have all of the
rights of a stockholder including, but not limited to, the right to vote such
stock and to receive dividends thereon as and when paid. In the event that an
employee's employment is terminated for any reason, an employee's Restricted
Stock will be forfeited; provided, however, that the Committee may limit such
forfeiture in its sole discretion. At the end of the Restricted Period, all
shares of Restricted Stock shall be transferred free and clear of all
restrictions to the employee. In the case of a Change in Control of the Company
(as defined in the 1993 Plan), an employee may receive his or her Restricted
Stock free and clear of all restrictions in the discretion of the Committee, or
as may otherwise be provided pursuant to the employee's Restricted Stock award.
Performance Share awards of Common Stock under the 1993 Plan shall be earned on
the basis of the Company's performance in relation to established performance
measures for a specific performance period. Such measures may include, but shall
not be limited to, return on investment, earnings per share, return on
stockholder's equity, or return to stockholders. Performance Shares may not be
sold, assigned, transferred, pledged or otherwise encumbered during the relevant
performance period. Performance Shares may be paid in cash, shares of Common
Stock or shares of Restricted Stock in such portions as the Committee may
determine. An employee must be employed at the end of the performance period to
receive payments of Performance Shares; provided, however, in the event that an
employee's employment is terminated by reason of death, disability, retirement
or other reason approved by the Committee, the Committee may limit such
forfeiture in its sole discretion. In the case of a Change in Control of the
Company (as defined in the 1993 Plan), an employee may receive his or her
Performance Shares in the discretion of the Committee, or as may otherwise be
provided in the employee's Performance Share award.
During January 2000, the Board of Directors of the Company approved the award of
incentive stock options to certain employees to acquire 90,000 shares of AmBase
Common Stock at exercise prices between $0.95 and $1.05 per share, pursuant to
the 1993 Plan.
Notes to Consolidated Financial Statements (continued)
Under the Company's 1985 Stock Option Plan (the "1985 Plan"), options to
purchase shares of Common Stock could be granted to salaried employees. The 1985
Plan provided for the granting of up to 2,000,000 shares as incentive stock
options and/or nonqualified stock options through May 22, 1995. No additional
stock options can be awarded under the 1985 Plan. As of December 31, 2000,
75,000 shares are reserved for issuance under the 1985 Plan.
As discussed in Note 5, stock options previously awarded under the 1985 Plan,
for 860,000 common shares and 815,000 common shares were exercised in January
2000 and October 1999, respectively.
Incentive plan activity is summarized as follows:
1993 Stock 1985 Stock
(shares in thousands) Incentive Plan Option Plan
========================= =============================
Weighted Weighted
Shares Average Shares Average
Under Exercise Under Exercise
Option Price Option Price
===== ======= ===== =======
Outstanding at December 31, 1997................... $ 105 $ 2.13 $ 1,750 $ 0.15
Granted............................................ 85 3.85 - -
-------- -------- -------- --------
Outstanding at December 31, 1998................... 190 2.90 1,750 0.15
Granted............................................ 90 2.69 - -
Exercised.......................................... - - (815) 0.11
-------- -------- -------- --------
Outstanding at December 31, 1999................... 280 $ 2.83 935 $ 0.18
Granted............................................ 90 1.00 - -
Exercised.......................................... - - (860) 0.11
-------- -------- -------- -------
Outstanding at December 31, 2000................... 370 $ 2.38 75 $ 0.21
===== ===== ===== =====
Options exercisable at:
December 31, 1998............................. 103 $ 2.11 1,750 $ 0.15
December 31, 1999............................. 148 2.62 935 0.18
December 31, 2000............................. 235 2.86 75 0.21
===== ===== ===== =====
1993 Stock 1985 Stock
Incentive Plan Option Plan
=========== =========
Weighted average fair value of options granted during:
1998..................................................... $ 1.89 $ -
1999..................................................... 1.25 -
2000..................................................... 0.45 -
====== ======
Notes to Consolidated Financial Statements (continued)
The following table summarizes information about the Company's stock options
outstanding and exercisable under the 1985 Plan and 1993 Plan at December 31,
2000, as follows:
(shares in thousands) Options Outstanding Options Exercisable
=============================== ==================================
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Contractual Exercise Exercise
Prices Shares Life Price Shares Price
====== ===== ======== ======= ===== =======
$0.21 75 4 years $ 0.21 75 $ 0.21
$0.95 to $1.05 90 7 years 1.00 -
-
$2.09 100 6 years 2.09 100 2.09
$2.56 to $3.65 135 6 years 2.98 90 3.13
$4.02 45 2 years 4.02 45 4.02
-------- ===== ===== -------- =======
Total 445 310
===== =====
The details of the Company's incentive plans are summarized above. The Company
has adopted the disclosure only provisions of Statement 123, but continues to
apply APB 25 in accounting for employee stock options. No compensation expense,
attributable to stock incentive plans, was charged to earnings during 2000, 1999
and 1998. The fair value of stock options granted by the Company in 2000, 1999
and 1998 used to compute proforma net income and earnings per share disclosures
is the estimated fair value at date of grant, using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants in
2000, 1999 and 1998, respectively: dividend yield 0% for all years, expected
historical volatility of 0.44, 0.46 and 0.53, risk-free interest rates of 5.80%,
6.07% and 4.65% , and weighted average expected life of the options of 4 to 6
years. If the Company had elected to recognize compensation cost for stock
options based on the fair value at date of grant for stock options under the
1993 Plan and the 1985 Plan, consistent with the method prescribed by Statement
123, net income (loss) and net income (loss) per share would have been changed
to the proforma amounts indicated below.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, and given the
substantial changes in the price per share of the Company's Common Stock during
2000, 1999 and 1998, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of proforma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period. The Company's proforma
information for the years ended December 31 follows:
(in thousands, except per share data) 2000 1999 1998
==== ==== ====
Net income (loss)
As reported..................................................... $ 5,174 $ (4,515) $ 181
Proforma........................................................ 5,090 (4,651) 61
===== ====== =====
Per share data
As reported..................................................... $ 0.11 $ (0.10) $ -
Proforma........................................................ 0.11 (0.10) -
===== ====== =====
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 9 - Income Taxes
The components of income tax expense for the years ended December 31 are as
follows:
(in thousands) 2000 1999 1998
==== ==== ====
Income tax expense $ (205) $ (235) $ (242)
==== ==== ====
The components of pretax income (loss) and the difference between income taxes
computed at the statutory federal rate of 35% in 2000, 1999 and 1998, and the
provision for income taxes for the years ended December 31 follows:
(in thousands) 2000 1999 1998
==== ==== ====
Income (loss) before income taxes............................... $ 5,379 $ (4,280) $ 423
==== ==== ====
Tax (expense) benefit:
Tax at statutory federal rate................................... $ ( 1,883) $ 1,498 $ (148)
Accounting loss benefit not recognized.......................... - (1,498) -
Accounting loss benefit recognized.............................. 1,883 - 148
State income taxes.............................................. (205) (235) (242)
-------- -------- --------
$ (205) $ (235) $ (242)
==== ==== ====
The composition of income tax expense for the year ended December 31 is as
follows:
(in thousands) 2000 1999 1998
==== ==== ====
Current:
Federal......................................................... $ - $ - $ -
State........................................................... (205) (235) (242)
-------- -------- --------
(205) (235) (242)
==== ==== ====
Notes to Consolidated Financial Statements (continued)
In June 1998, the Company paid $12,700,000 to the IRS for tax and estimated
interest to be applied to the Company's Fresh Start tax liability, which related
to a 1987 tax dispute with the IRS. Based on the Final Stipulation between the
Company and the IRS on the Fresh Start issue, the Company received a $36,000
refund of tax and interest on the Fresh Start issue in August 2000. In
connection with the Final Stipulation, the Company utilized approximately $29
million of NOL's. A summary of the Company's NOL carryforwards remaining after
the utilization of the $29 million NOL's applied to Fresh Start is provided
below.
As a result of the Office of Thrift Supervision's December 4, 1992 placement of
Carteret in receivership, under the management of the Resolution Trust
Corporation ("RTC")/Federal Deposit Insurance Corporation ("FDIC"), and proposed
Treasury Reg. ss.1.597-4(g), the Company had previously filed its 1992 and
subsequent federal income tax returns with Carteret disaffiliated from the
Company's consolidated federal income tax return. Based upon the impact of
Treasury Reg. ss.1.597-4(g), which was issued in final form on December 20,
1995, a continuing review of the Company's tax basis in Carteret, and the impact
of prior year tax return adjustments on the Company's 1992 federal income tax
return as filed, the Company decided not to make an election pursuant to final
Treasury Reg. ss.1.597-4(g) to disaffiliate Carteret from the Company's
consolidated federal income tax return effective as of December 4, 1992 (the
"election decision").
The Company has made numerous requests to the RTC/FDIC for tax information
pertaining to Carteret and the resulting successor institution, Carteret Federal
Savings Bank ("Carteret FSB"); however all of the information still has not been
received. Based on the Company not making the election decision, as described
above, and the receipt of some of the requested information from the RTC/FDIC,
the Company has amended its 1992 consolidated federal income tax return to
include the federal income tax effects of Carteret and Carteret FSB. The Company
is still in the process of amending its consolidated federal income tax returns
for 1993 and subsequent years.
The Company anticipates that, as a result of filing a consolidated federal
income tax return with Carteret FSB, a total of approximately $170 million of
tax NOL carryforwards will be generated from the Company's tax basis in
Carteret/Carteret FSB as tax losses are incurred by Carteret FSB of which $158
million are still available for future use. Based on the Company's recent filing
of its amended 1992 consolidated federal income tax return to include the
federal income tax effects of Carteret FSB, approximately $56 million of NOL
carryforwards are generated for tax year 1992 which expire in 2007, with the
remaining approximate $102 million of NOL carryforwards to be generated,
expiring no earlier than 2008. These NOL carryforwards would be available to
offset future taxable income, in addition to the NOL carryforwards as further
detailed below.
Based upon the Company's federal income tax returns as filed from 1993 to 1999
(subject to IRS audit adjustments), an estimate of year 2000 federal income tax
return, after utilizing $29 million of NOL carryforwards in connection with
Fresh Start; and excluding the NOL carryforwards generated from the Company's
tax basis in Carteret/Carteret FSB, as noted above, at December 31, 2000 the
Company has NOL carryforwards available to reduce future federal taxable income,
which expire if unused, as follows:
2009 $2,300,000
2010 5,300,000
2012 1,100,000
2018 5,400,000
2019 4,000,000
---------
$18,100,000
===========
The Company's federal income tax returns for years subsequent to 1992 have not
been reviewed by the IRS. The utilization of certain carryforwards is subject to
limitations under U.S. federal income tax laws. In addition, the Company has
approximately $21 million of alternative minimum tax credit carryforwards, which
are not subject to expiration.
Notes to Consolidated Financial Statements (continued)
Under Statement 109, the Company has calculated a net deferred tax asset of $27
million and $28 million as of December 31, 2000 and 1999, respectively, arising
primarily from NOL's, alternative minimum tax credits and the excess of book
over tax reserves (not including the anticipated tax effects of the NOL's
expected to be generated from the Company's tax basis in Carteret, resulting
from the election decision, as more fully described above). A valuation
allowance has been established for the entire net deferred tax asset, as
management, at the current time, has no basis to conclude that realization is
more likely than not.
Note 10 - Commitments and Contingencies
Future minimum rental payments, principally for office space, under
noncancellable operating leases at December 31, 2000, are: 2001, $20,000. Rent
expense charged to earnings was $67,000, $67,000 and $66,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.
The Company is currently in negotiations to purchase a 14,000 square foot office
building in Greenwich, CT for approximately $2,400,000. Approximately 3,000
square feet will be used by the Company for its executive offices with the
remaining square footage leased to unaffiliated third parties.
Note 11 - Legal Proceedings
(a) The Company is or has been a defendant in a number of lawsuits or
proceedings, including the following:
Marshall Manley v. AmBase Corporation. On November 14, 1996, Marshall Manley
("Manley"), a former President, Chief Executive Officer and Director of the
Company, commenced an action against the Company, seeking indemnification from
the Company pursuant to a May 27, 1993 employment settlement agreement between
Manley and the Company. Manley seeks reimbursement of certain alleged payments
he made to the Trustee in the bankruptcy proceedings of the law firm of Finley,
Kumble, Wagner, Heine, Underberg, Manley & Casey (the "Manley action"), arguing
that he served at such firm at the request of the Company. The Manley action is
pending in the United States District Court for the Southern District of New
York. The Company filed its answer on January 21, 1997, raising substantial
affirmative defenses which the Company intends to vigorously pursue. On October
30, 1997, AmBase amended its Answer and Counterclaims to include a claim of
fraud against Manley. In December 1997, Manley moved for summary judgment. The
Company raised substantial opposition to the motion and moved to strike certain
of Manley's affirmative defenses which Manley raised in connection with the
Company's fraud claim against Manley. Oral argument on Manley's Motion for
Summary Judgment and the Company's motion to strike Manley's affirmative
defenses was held on May 15, 1998. The court denied both motions. The jury trial
of the plaintiff's breach of contract claims took place in May, 2000 and
resulted in a verdict against the Company. The Company's counterclaims for fraud
and reformation were tried to the Court immediately following the jury's
verdict. In December, 2000, the Court, in response to the Company's motion for
judgment as a matter of law and/or for a new trial, vacated the jury's earlier
verdict (therefore nullifying it) and ordered a new trial. The Court has not yet
fixed a date for the new trial. Subsequent to the Court's vacatur of the jury's
verdict in January, 2001 the Court dismissed the Company's courterclaims for
fraud and reformation. The Company intends to vigorously defend against Manley's
contract claims on retrial.
Dispute with Internal Revenue Service over Withholding Obligations (Netherlands
Antilles). In connection with the liquidation of City Investing Company ("City")
the Company, among others, contractually assumed certain tax liabilities of
City, which, prior to September 1985, owned all the outstanding shares of Common
Stock of the Company. Other liabilities were assumed by, among others, City
Investing Company Liquidating Trust (the "Trust"). The only issue that remains
in dispute between City and the IRS is with respect to obligations for
withholding of taxes in connection with a Netherlands Antilles finance
subsidiary of City (the "Withholding Issue").
With respect to the Withholding Issue, in connection with a Netherlands Antilles
finance subsidiary of City, on May 11, 1995, the IRS issued a Notice of
Deficiency for the withholding of tax on interest payments for the years 1979
through 1985. In the Notice of Deficiency, the IRS contends that City's wholly
owned Netherlands Antilles finance subsidiary should be disregarded for tax
purposes. The Company, on behalf of City, vigorously contested the IRS's
position in accordance with the IRS's internal appeals procedures. In January
1992, the National Office of the IRS issued technical advice supporting the
auditing agent's position. In October 1992, the Company appealed this technical
advice to the National Office. The National Office advised the Company that it
expected to issue technical advice supporting the auditing agent's position,
whereupon the Company advised the IRS that it was withdrawing its technical
advice request.
Notes to Consolidated Financial Statements (continued)
On June 30, 1995, the Company, on behalf of City, filed a petition in the United
States Tax Court ("Tax Court") contesting the Notice of Deficiency. The IRS
filed its answer on August 23, 1995. The Company filed a motion for summary
judgment in its favor on February 13, 1996. On April 17, 1996, the IRS filed a
Notice of Objection to the Company's motion for summary judgment. The Tax Court
requested, and the Company filed, on July 3, 1996, a reply to the IRS's Notice
of Objection. On September 19, 1996, the Court denied the Company's motion for
summary judgment without prejudice. Based on the Tax Court's examination of the
record and the status of the discovery process, the Tax Court concluded that
summary adjudication at that time was inappropriate. The Tax Court directed the
parties to engage in full and complete discovery as expeditiously as possible. A
trial was held in this case on March 24, 1997, after which the Judge asked the
IRS and the Company to submit post-trial briefs, which were submitted to the Tax
Court in August 1997. If the IRS were to prevail on this issue, the Company
could be liable for City's withholding obligation plus interest in excess of the
Company's financial resources. A significant factor in determining the amount of
the Company's ultimate liability for this issue is whether pursuant to the
contractual arrangement between the Company and City, the Company is primarily
liable for the withholding obligation and interest. See AmBase Corporation v.
City Investing Company Liquidating Trust, et al., below.
In a case dealing with a similar withholding issue, the Tax Court ruled in favor
of the taxpayer, Northern Indiana Public Service Co. ("Northern Indiana"), in
November 1995. The Tax Court rejected the IRS's contention that interest paid to
Northern Indiana's foreign subsidiary was subject to United States withholding
of tax. The IRS appealed this decision (Northern Indiana Public Service Co. v.
Commissioner) to the United States Court of Appeals for the 7th Circuit (the
"Appeals Court"). In June 1997 the Appeals Court affirmed the Tax Court's ruling
in favor of Northern Indiana. Although the Appeals Court decision in the
Northern Indiana case could be beneficial to the case involving City, it is not
necessarily indicative of the ultimate result of the final settlement of the
Netherlands Antilles issue involving City.
Based on an evaluation of the IRS's contention, counsel has advised the Company
that, although the outcome in litigation can by no means be assured, the Company
has a very strong case and should prevail. Notwithstanding counsel's opinion and
the Tax Court's ruling in the Northern Indiana case, it is not possible at this
time to determine the final disposition of this issue, when the issues will be
resolved, or their final financial effect. A final disposition of this issue in
the Company's favor would have a material positive effect on the Company's
Consolidated Statement of Operations and Financial Condition.
The actions against the Company are in various stages. Nevertheless, the
allegations and claims are material and, if successful, could result in
substantial judgments against the Company. To the extent the aggregate of any
such judgments were to exceed the resources available, these matters would have
a material adverse effect on the Company's financial condition and results of
operations. Due to the nature of these proceedings, the Company and its counsel
are unable to express any opinion as to their probable outcome.
Notes to Consolidated Financial Statements (continued)
(b) Supervisory Goodwill Litigation:
During the third quarter of 1993, the Company filed a claim against the United
States, in the United States Court of Federal Claims (the "Court of Federal
Claims"), based upon the impact of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA") on the Company's investment in Carteret
Savings Bank ("Carteret"). Approximately 120 other similar so-called
"supervisory goodwill" cases, commenced in recent years by other financial
institutions and/or their shareholders, are pending in the Court of Federal
Claims. Three of these cases, Winstar Corp. v. United States, Glendale Federal
Bank, FSB v. United States, and Statesman Savings Holding Corp. v. United States
(the "consolidated cases"), which involve many of the same issues raised in the
Company's suit, were appealed to the United States Supreme Court (the "Supreme
Court"). On July 1, 1996, the Supreme Court issued a decision in the
consolidated cases. The Supreme Court's decision affirmed the lower Court's
grant of summary judgment in favor of the plaintiffs on the issue of liability
and remanded the cases for a determination of damages. Although the decision in
the consolidated cases is beneficial to the Company's case, it is not
necessarily indicative of the ultimate outcome of the Company's action.
On September 18, 1996, the Court of Federal Claims entered an Omnibus Case
Management Order that will govern further proceedings in the Company's action
and most of the other so-called "Winstar-related" cases. On March 14, 1997, the
Court entered an order permitting the Federal Deposit Insurance Company ("FDIC")
to intervene as an additional plaintiff in forty-three cases, including the
Company's case, but not allowing the FDIC to be substituted as the sole
plaintiff in those cases.
On April 9, 1999 and April 16,1999, respectively, the Court issued decisions
addressing damage claims in two of the Winstar-related cases, Glendale Federal
Bank, FSB v. United States, and California Federal Bank v. United States. In the
Glendale case, the Court awarded Glendale $908.9 million in restitution and
non-overlapping reliance damages, representing the benefit conferred on the
government as a result of the contract at issue in that case, plus certain
non-overlapping damages suffered by Glendale as a result of the government's
breach of contract. The Court declined to award expectation damages as requested
by Glendale. In the California Federal case, the Court awarded California
Federal $23.4 million in damages, representing expenses incurred by California
Federal in raising new capital to replace the supervisory goodwill lost as a
result of the government's breach of contract. The Court declined to award
expectation damages, restitution, or other reliance damages as requested by
California Federal. On February 16, 2001, the United States Court of Appeals for
the Federal Circuit issued a decision in the case of Glendale Federal Bank, FSB
v. United States, which involves certain damages issues related to the Company's
case. The decision vacated in part the decision of the United States Court of
Federal Claims dated April 9, 1999, and remanded the case back to the Court of
Federal Claims for a determination of total reliance damages. The trial court
and appellate decisions in Glendale and California Federal as well as other case
decisions, may be relevant to the Company's claims, but are not necessarily
indicative of the ultimate outcome of the Company's action.
On March 20, 1998, the FDIC filed a motion for partial summary judgment against
the United States on certain liability issues, and the Company has filed a
memorandum in support of that motion. The FDIC's motion is currently under
submission to the court.
Fact discovery for the Company was completed November 30,1999 pursuant to an
extension of time granted by the Court. On September 9, 1999, the Company filed
a Motion For Partial Summary Judgment on liability under a Fifth Amendment
Takings claim theory of recovery. On November 24, 1999, the FDIC, as successor
to the rights of Carteret and as Plaintiff-Intervenor in the case, filed a
response brief opposing the Company's Motion. On December 6, 1999, the
Department of Justice (the "DOJ") (on behalf of the United States) filed a brief
opposing the Company's Motion For Partial Summary Judgment On Liability And
Cross-Moved for Summary Judgment On the Company's Takings claim. On January 25,
2000, the Company responded to the DOJ's brief and the FDIC's brief by filing a
Brief (i) In Reply To Defendant's Opposition To Plaintiffs' Motion For Partial
Summary Judgment, (ii) In Opposition To Defendant's Cross-Motion For Summary
Judgment, And (iii) In Reply To FDIC's Response To Plaintiffs' Motion For
Partial Summary Judgment. On February 22, 2000 the DOJ filed a brief in Reply To
Plaintiffs' Opposition To Defendant's Cross-Motion For Summary Judgment.
Notes to Consolidated Financial Statements (continued)
On February 18, 2000, the Court issued an Order granting the Company's motion to
suspend the expert discovery period until after the Company's Summary Judgment
Motion has been decided. The expert discovery period will now commence with the
Company's identification of its experts within 30 days of the decision of the
Court on the Company's pending Summary Judgment Motion. On October 2, 2000,
Senior Judge Loren Smith of the Court of Federal Claims heard oral arguments in
the Company's supervisory goodwill case against the United States government.
The court heard arguments both as to the contractual liability of the United
States to Carteret Savings Bank, and as to the Company's claim against the
United States under the Takings Clause of the Fifth Amendment. No assurance can
be given regarding the ultimate outcome of the litigation.
(c) Other - AmBase Corporation v. City Investing Company Liquidating
Trust, et al.
The Delaware Court Action - In August 2000, the Company filed a
complaint against City Investing Company Liquidating Trust (the
"Trust") seeking determination by the Delaware Chancery Court that the
Trust, as successor to City Investing Company, (as opposed to AmBase
Corporation), should be primarily liable for amounts, if any, owed to
the IRS in connection with the NV Withholding Obligation Issue, as
further discussed herein above. The Company is also seeking other
relief and certain other damages from the Trust and its Trustees. On
September 29, 2000, the Trust moved to dismiss the Company's complaint
on the grounds that it fails to state a claim for which relief can be
granted and the Company's claims are barred by the statute of
limitations. The Company subsequently filed a brief in response to the
Trust's motion.
On December 14, 2000 oral argument on Trust's motion to dismiss was
heard before the Delaware Court. On January 3, 2001, Vice Chancellor
Strine of the Court of Chancery of the State of Delaware granted the
Motion to Dismiss this action filed by the defendants. On February 7,
2001, Vice Chancellor Strine denied AmBase's Motion for Reargument of
this dismissal. On March 8, 2001 the Company filed a Notice of Appeal
of the February 7, 2001 denial, to the Supreme Court of the State of
Delaware, but has subsequently withdrawn this appeal in order to
proceed more directly with its New York Court action against the Trust,
described below.
The New York Court Action - On January 31, 2001, the Company filed a
Complaint in the United States District Court for the Southern District
of New York (the "NY Court") seeking determination that the Trust, as
successor to City Investing Company, should be primarily liable for
amounts, if any, owed to the IRS in connection with the NV Withholding
Obligation Issue. The Company is also seeking other relief and certain
other damages from the Trust and its Trustees. On February 23, 2001,
the Trust filed a Motion to Dismiss the Company's Complaint in this
action. On March 9, 2001 the Company filed its opposition to the
Trust's Motion to Dismiss. No assurances can be given regarding the
ultimate outcome of the litigation.
Note 12 - Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for cash and cash
equivalents, and accounts payable and accrued liabilities approximate fair value
due to the short-term nature of these instruments. The fair value of investment
securities - held to maturity are based on current market quotations. Other
investment securities are based upon the December 2000 and 1999 cost for these
privately placed shares. The carrying value of applicable other liabilities
approximates their fair value.
Notes to Consolidated Financial Statements (continued)
Note 13 - Supplemental Disclosure of Cash Flow Information
Additional information regarding cash flow for the years ended December 31 is as
follows:
(in thousands) 2000 1999 1998
==== ==== ====
Cash paid during the period:
Income tax ............................................... $ 170 $ 233 $ 12,940
====== ====== ======
For the years ended December 31, 2000, 1999 and 1998 no cash interest was paid.
Note 14 - Quarterly Financial Information (unaudited)
Summarized quarterly financial information follows:
First Second Third Fourth Full
(in thousands, except per share data) Quarter Quarter Quarter Quarter Year
===== ===== ===== ===== =====
2000:
Operating expenses...................... $ 1,303 $ 2,040 $ 1,171 $ 1,338 $ 5,852
---------- ---------- ---------- ---------- ----------
Operating loss.......................... (1,303) (2,040) (1,171) (1,338) (5,852)
Interest income......................... 582 676 766 771 2,795
Other income............................ 50 8,308 50 28 8,436
---------- ---------- ---------- ---------- ---------
Income (loss) before income taxes....... (671) 6,944 (355) (539) 5,379
Income tax expense ..................... (55) (55) (44) (51) (205)
---------- ---------- ---------- ---------- ----------
Net income (loss)....................... $ (726) $ 6,889 $ (399) $ (590) $ 5,174
===== ===== ===== ===== =====
Earnings per common share:
Net income (loss) - basic............... $ (0.02) $ 0.15 $ (0.01) $ (0.01) $ 0.11
Net income (loss) - assuming dilution... (0.02) 0.15 (0.01) (0.01) 0.11
===== ===== ===== ===== =====
1999:
Operating expenses...................... $ 1,038 $ 2,245 $ 1,482 $ 1,875 $ 6,640
---------- ---------- ---------- ---------- ----------
Operating loss.......................... (1,038) (2,245) (1,482) (1,875) (6,640)
Interest income......................... 531 523 544 568 2,166
Other income............................ 43 61 50 40 194
---------- ---------- ---------- ---------- ----------
Loss before income taxes................ (464) (1,661) (888) (1,267) (4,280)
Income tax expense ..................... (55) (68) (46) (66) (235)
---------- ---------- ---------- ---------- ----------
Net loss................................ $ (519) $ (1,729) $ (934) $ (1,333) $ (4,515)
===== ===== ===== ===== =====
Earnings per common share:
Net loss - basic........................ $ (0.01) $ (0.04) $ (0.02) $ (0.03) $ (0.10)
Net loss - assuming dilution............ (0.01) (0.04) (0.02) (0.03) (0.10)
===== ===== ===== ===== =====
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning executive officers required by this item is set forth
following Item 4 of Part I of this report under the caption "Executive Officers
of the Registrant", pursuant to General Instruction G to Form 10-K. For the
information required to be set forth by the Company in response to this item
concerning directors of the Company, see the Company's definitive Proxy
Statement for its Annual Meeting of Shareholders to be held on June 1, 2001,
under the caption "Information Concerning the Board and its Committees", which
is incorporated herein by reference, which the Company intends to file with the
Securities and Exchange Commission not later than 120 days after the close of
its fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
For the information required to be set forth by the Company in response to this
item, see the Company's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on June 1, 2001, under the caption "Executive
Compensation", which is incorporated herein by reference, which the Company
intends to file with the Securities and Exchange Commission not later than 120
days after the close of its fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For the information required to be set forth by the Company in response to this
item, see the Company's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on June 1, 2001, under the caption "Stock Ownership",
which is incorporated herein by reference, which the Company intends to file
with the Securities and Exchange Commission not later than 120 days after the
close of its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the information required to be set forth by the Company in response to this
item, see the Company's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on June 1, 2001, under the caption "Certain
Relationships and Related Transactions", which is incorporated herein by
reference, which the Company intends to file with the Securities and Exchange
Commission not later than 120 days after the close of its fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
1. Index to Financial Statements: Page
AmBase Corporation and Subsidiaries:
Report of Independent Accountants.................................................................11
Consolidated Statements of Operations.............................................................12
Consolidated Balance Sheets.......................................................................13
Consolidated Statements of Changes in Stockholders' Equity........................................14
Consolidated Statements of Cash Flows.............................................................15
Notes to Consolidated Financial Statements........................................................16
2. Index to Financial Statements Schedules:
All schedules have been omitted because they are not applicable.
3. Exhibits:
3A. Restated Certificate of Incorporation of AmBase Corporation
(as amended through February 12, 1991) (incorporated by
reference to Exhibit 3A to the Company's Annual Report on Form
10-K for the year ended December 31, 1990).
3B. By-Laws of AmBase Corporation (as amended through March 15,
1996), (incorporated by reference to Exhibit 3B to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
4. Rights Agreement dated as of February 10, 1986 between the
Company and American Stock Transfer and Trust Co. (as amended
March 24, 1989, November 20, 1990, February 12, 1991, October
15, 1993, February 1, 1996 and November 1, 2000) (incorporated
by reference to Exhibit 4 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990, the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1993, the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 and the Company's
Quarterly Report on Form 10-Q for the Quarterly period ended
September 30, 2000, respectively).
10A. 1985 Stock Option Plan for Key Employees of AmBase and its
Subsidiaries (incorporated by reference to Exhibit 10B to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1989).
10B. 1993 Stock Incentive Plan as amended (incorporated by
reference to Exhibit A to the Company's Proxy Statement for
the Annual Meeting of Stockholders held on May 28, 1998).
10C. 1994 Senior Management Incentive Compensation Plan
(incorporated by reference to Exhibit A to the Company's Proxy
Statement for the Annual Meeting of Stockholders held on May
27, 1994).
10D. AmBase Officers and Key Employees Stock Purchase and Loan Plan
(incorporated by reference to Exhibit 10E to the Company's
Annual Report on Form 10-K for the year ended December 31,
1989).
10E. AmBase Supplemental Retirement Plan (incorporated by reference
to Exhibit 10C to the Company's Annual Report on Form 10-K for
the year ended December 31, 1989).
10F. Assignment and Assumption Agreement dated as of August 30,
1985, between the Company and City (incorporated by reference
to Exhibit 28 to the Company's Current Report on Form 8-K
dated September 12, 1985).
10G. Employment Agreement dated as of June 1, 1991 between Richard
A. Bianco and the Company, as amended December 30, 1992
(incorporated by reference to Exhibit 10G to the Company's
Annual Report on Form 10-K for the year ended December 31,
1992), as amended February 24, 1997 (incorporated by reference
to Exhibit 10G to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996) and as amended March 6,
2001 included herein.
21. Subsidiaries of the Registrant.
23. Consent of Independent Accountants.
Exhibits, except as otherwise indicated above, are filed herewith.
(b) Form 8-K
The Company was not required to file a Current Report on Form 8-K during
the quarter ended December 31, 2000.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 29th day of March
2001.
AMBASE CORPORATION
RICHARD A. BIANCO
Chairman, President and Chief Executive
Officer (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated, on the 29th day of March 2001.
RICHARD A. BIANCO JOHN P. FERRARA
Chairman, President and Vice President, Chief Financial Officer
Chief Executive Officer and Controller
(Principal Financial and Accounting
Officer)
JOHN B. COSTELLO ROBERT E. LONG
Director Director
MICHAEL L. QUINN
Director
DIRECTORS AND OFFICERS
Board of Directors
Richard A. Bianco John B. Costello Robert E. Long
Chairman, President and Private Investor Managing Director
Chief Executive Officer Goodwyn, Long & Black
AmBase Corporation
Michael Quinn
Private Investor
AmBase Officers
Richard A. Bianco John P. Ferrara
Chairman, President and Vice President, Chief Financial Officer
Chief Executive Officer and Controller
INVESTOR INFORMATION
Annual Meeting of Stockholders Corporate Headquarters
============================== ======================
The 2001 Annual Meeting is currently AmBase Corporation
scheduled to be held at 9:00 a.m. Eastern 51 Weaver Street, Bldg. 2
Daylight Time, on Friday, June 1, 2001, at: Greenwich, CT 06831-5155
(203) 532-2000
Greenwich Library, the Cole Auditorium
101 West Putnam Avenue
Greenwich, CT 06830 Stockholder Inquiries
=====================
Common Stock Trading Stockholder inquiries,
==================== including requests for the
following: (i) change of
AmBase stock is traded through one or address; (ii) replacement of
more market-makers (ii) replacement of lost stock certificates;
lost stock certificates; with (iii) Common Stock name
quotations made available in the "pink registration changes; (iv)
sheets" (iii) Common Stock name Quarterly Reports on Form
registration changes; published by the 10-Q; (v) Annual Reports on
National Quotation Bureau, Inc. Form 10-K; (vi)proxy material;
and (vii) information regard-
ing stock holdings, should be
directed to:
Issue Abbreviation Ticker Symbol American Stock Transfer and
===== ============ ============= Trust Company
40 Wall Street - 46th Floor
Common Stock AmBase ABCP New York, NY 10005
Attn: Shareholder Services
(800) 937-5449 or
Transfer Agent and Registrar (718) 921-8200
============================
In addition, the Company's
American Stock Transfer and public reports, including
Trust Company Quarterly Report on Form 10-Q,
40 Wall Street - 46th Floor Annual Report on Form 10-K
New York, NY 10005 and Proxy Statements, can be
Attn: Shareholder Services Obtained through the
(800) 937-5449 or (718) 921-8200 Securities and Exchange
Commission EDGAR Database
Independent Accountants over the World Wide Web at
======================= www.sec.gov.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas Number of Stockholders
New York, NY 10036 ======================
As of January 31, 2001, there
were approximately 17,700
stockholders.
EXHIBITS ATTACHED WITH THIS FORM 10-K
Exhibit No. Description
- ----------- -----------
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
10 G. Employment Amendment