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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, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________
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.)
100 Putnam Green, 3rd Floor, Greenwich, CT 06830-6027
(Address of principal executive offices)
Registrant's telephone number, including area code (203) 532-2000
Securities registered pursuant to Section 12(g)of the Act:
Title of each class
Common Stock ($0.01 par value)
Rights to Purchase Common Stock
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, 2002, there were 46,208,519 shares of registrant's Common Stock
outstanding. At January 31, 2002 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 $1.41 per share, was approximately $50 million. The Common Stock
constitutes registrant's only outstanding security.
Portions of the registrant's definitive Proxy Statement for its 2002 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 33.
AmBase Corporation
Annual Report on Form 10-K
December 31, 2001
TABLE OF CONTENTS 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...........................................................................5
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............5
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................8
Item 8. Financial Statements and Supplementary Data.......................................................9
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............32
PART III
Item 10. Directors and Executive Officers of the Registrant...............................................32
Item 11. Executive Compensation...........................................................................32
Item 12. Security Ownership of Certain Beneficial Owners and Management...................................32
Item 13. Certain Relationships and Related Transactions...................................................32
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................33
PART I
ITEM 1. BUSINESS
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 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.
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 approximately 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.
The Company's assets currently consist primarily of cash and cash equivalents
and investment securities.
The Company had 5 employees at December 31, 2001.
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 Part II - 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.
See Part II - Item 8 - Note 11 to the Company's consolidated financial
statements for a discussion of Supervisory Goodwill Litigation.
ITEM 2. PROPERTIES
In April 2001 the Company purchased a 14,500 square feet office building in
Greenwich, Connecticut for $2.4 million. Approximately 2,100 square feet is
utilized by the Company for its executive offices with the remaining square
footage leased to unaffiliated third parties.
ITEM 3. LEGAL PROCEEDINGS
The Company has certain alleged liabilities and is a defendant in certain
lawsuits. The accompanying consolidated financial statements do not include
adjustments that might result from an ultimate unfavorable outcome of these
uncertainties. Although the basis for the calculation of the litigation reserves
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, 2001, the litigation reserves were
$1,471,000. For a discussion of alleged liabilities and lawsuits including the
Supervisory Goodwill Litigation see, Part II - Item 8 - Note 11 to the Company's
consolidated financial statements.
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 had remained in
dispute with the Internal Revenue Service ("IRS") was with respect to
withholding taxes in connection with a Netherlands Antilles finance subsidiary
of City ("Withholding Obligation"). In May 2001 the United States Tax Court
("Tax Court") ruled in favor of City, holding that City was not liable for the
payment of the withholding taxes. The attorneys in the Withholding Obligation
case informed the Company that the IRS did not file a Notice of Intention to
Appeal; therefore, in accordance with Section 7481 of the Internal Revenue Code,
the Tax Court's decision is final. See Part II - Item 7 - Financial Condition
for further information.
The Company's management, after consultation, with its accounting, tax and legal
advisors reversed its Withholding Obligation reserve of $66,388,000 during the
quarter ended June 30, 2001, as further discussed in Part II - Item 7 -
Financial Condition, herein.
See Part II - Item 8 - Note 11 to the Company's consolidated financial
statements for a further discussion of the Company's other legal proceedings,
including proceedings involving Marshall Manley, City Investing Company
Liquidating Trust, and the 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,
2001:
Name Age Title
==== === ==========
Richard A. Bianco 54 Chairman, President and
Chief Executive Officer of
AmBase Corporation
John P. Ferrara 40 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.
2001 2000
====================== =======================
High Low High Low
==== === ==== ===
First Quarter....................... $ 0.79 $ 0.56 $ 1.00 $ 0.75
Second Quarter...................... 0.99 0.57 0.93 0.65
Third Quarter....................... 1.06 0.86 0.91 0.64
Fourth Quarter...................... 1.08 0.85 0.90 0.54
As of January 31, 2002, there were approximately 17,900 beneficial owners of the
Company's Common Stock. No dividends were declared or paid on the Company's
Common Stock in 2001 or 2000. The Company does not intend to declare or pay
dividends in the foreseeable future.
For information concerning the Company's stockholder rights plan and
common stock repurchase plan, see Part II - Item 8 - Note 5 to the
Company's consolidated financial statements.
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 stockhold-
ings, should be directed to:
American Stock Transfer and Trust Company
59 Maiden Lane
New York, NY 10038
Attention: Shareholder Services
(800) 937-5449 or (718) 921-8200 Ext. 6820
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 6. SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with the Company's
consolidated financial statements included in Part II - Item 8 of this Form
10-K.
Years ended December 31
==================================================================
(in thousands, except per share data) 2001 2000 1999 1998 1997
==== ==== ==== ==== ====
Interest income............................. $ 2,099 $ 2,795 $ 2,166 $ 2,430 $ 2,661
Income (loss) before income taxes........... 62,335 5,379 (4,280) 423 (1,275)
Income tax (expense) benefit................ (225) (205) (235) (242) 191
Net income (loss)........................... 62,110 5,174 (4,515) 181 (1,084)
====== ====== ====== ====== ======
Earnings per common share
Net income (loss) - basic................... $ 1.34 $ 0.11 $ (0.10) $ - $ (0.02)
Net income (loss) - assuming dilution....... 1.34 0.11 (0.10) - (0.02)
====== ====== ====== ====== ======
Dividends................................... - - - - -
====== ====== ====== ====== ======
Total assets................................ $ 50,445 $ 53,102 $ 47,678 $51,638 $ 64,270
Total stockholders' equity.................. 38,013 (24,097) (29,424) (25,000) (25,181)
====== ====== ====== ====== ======
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 Part II - Item 8, herein.
Financial Condition and Liquidity
The Company's assets at December 31, 2001 aggregated $50,445,000, consisting
principally of cash and cash equivalents of $6,130,000 and investment securities
of $40,232,000. At December 31, 2001, the Company's liabilities, including
reserves for litigation liabilities, as further described in Part II - Item 8 -
Note 11 to the Company's consolidated financial statements, aggregated
$12,432,000. Total stockholders equity was $38,013,000.
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 had remained in
dispute between City and the Internal Revenue Service ("IRS") was with respect
to withholding obligations in connection with a Netherlands Antilles finance
subsidiary of City (the "Withholding Issue"). The IRS had contended that the
withholding of tax on interest payments were due by City in connection with
City's Netherlands Antilles finance subsidiary for the years 1979 through 1985
(the "Withholding Obligation"). In May 2001 the United States Tax Court (the
"Tax Court") ruled in favor of City, holding that City was not liable for the
payment of withholding taxes. The attorneys in the Withholding Obligation case
informed the Company that the IRS did not file a Notice of Intention to Appeal;
therefore, in accordance with Section 7481 of the Internal Revenue Code, the Tax
Court's decision is final.
The Company's management, after consultation, with its accounting, tax and legal
advisors reversed its Withholding Obligation reserve of $66,388,000 during the
quarter ended June 30, 2001, which was recorded as other income in the Company's
Consolidated Statement of Operations. This decision was based upon (i) an
analysis of the favorable ruling in the Tax Court, (ii) the Company's case
pending in the United States District Court for the Southern District of New
York against the Trust (the "City Trust NY Action") (for further information see
Part II - Item 8 - Legal Proceedings, AmBase Corporation v. City Investing
Company Liquidating Trust et al.), and (iii) the $9,500,000, (plus interest),
escrow account which was part of the Company's June 2000 settlement agreement
with Zurich SF Holdings LLC (f/k/a Reorganized Home Holdings, Inc.)("SF
Holdings").
At December 31, 2001, the litigation reserves were $1,471,000. For a discussion
of alleged liabilities, lawsuits and governmental proceedings, see Part II -
Item 8.
In June 2000 the Company entered into a settlement agreement with 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 IRS over the Withholding
Obligation Issue. As of December 31, 2001 the Escrow Account balance, including
interest, was approximately $10,000,000. As a result of the final resolution of
the Withholding Obligation Issue with the IRS, approximately $8,000,000 of the
escrow fund was returned to an affiliate of SF Holdings in February 2002. The
remaining Escrow Account balance as of February 28, 2002 is approximately
$2,000,000.
In December 2001 the Company requested payment of approximately $1,500,000 from
the Escrow Account for certain expenses. SF Holdings objected to the payment of
these expenses. As a result of SF Holdings' objection, the payment request is
being arbitrated pursuant to the terms of the settlement agreement. Upon the
final payment of outstanding expenses, the residual of the Escrow Account, if
any, will be delivered to an affiliate of SF Holdings.
For the year ended December 31, 2001, cash of $4,640,000 was used by operations,
including the payment of prior year accruals and operating expenses, partially
offset by the receipt of interest income. The cash needs of the Company for 2001
were principally satisfied by interest income received on investment securities
and cash equivalents, and the Company's financial resources. Management believes
that the Company's cash resources are sufficient to continue operations for
2002.
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 reserves. 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.
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
financial resources. 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 reserves, partially
offset by the receipt of interest income.
There are no material commitments for capital expenditures as of December 31,
2001. 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. 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.
Management of the Company continually reviews the likelihood of liability and
associated costs of pending and threatened litigation. At December 31, 2001, the
litigation reserves were $1,471,000. For a discussion of alleged liabilities,
lawsuits and proceedings, and a discussion of the Supervisory Goodwill
Litigation, see Part II - Item 8 - Note 11 to the Company's consolidated
financial statements.
From time to time, the Company may publish "Forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Act"), and Section 21E of the Exchange Act or make oral statements that
constitute forward-looking statements. These forward-looking statements may
relate to such matters as anticipated financial performance, future revenues or
earnings, business prospects, projected ventures, anticipated market
performance, and similar matters. The Private Securities Litigation Reform Act
of 1995 provides a safe harbor for forward-looking statements. In order to
comply with the terms of the safe harbor, the Company cautions readers that a
variety of factors could cause the Company's actual results to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. These risks and uncertainties, many of which are
beyond the Company's control, include, but are not limited to: (i) transaction
volume in the securities markets, (ii) the volatility of the securities markets,
(iii) fluctuations in interest rates, (iv) changes in regulatory requirements
which could affect the cost of doing business, (v) general economic conditions,
(vi) changes in the rate of inflation and the related impact on the securities
markets, (vii) changes in federal and state tax laws, and (viii) risks arising
from unfavorable decisions in our current materials litigation maters, or
unfavorable decisions in other supervisory goodwill cases. The Company does not
undertake any obligation to update or revise any forward-looking statements
whether as a result of future events, new information or otherwise.
Results of Operations
Summarized financial information for the operations of the Company for the years
ended December 31 is as follows:
(in thousands) 2001 2000 1999
==== ==== ====
Operating expenses:
Compensation and benefits..................................... $ 5,021 $ 3,507 $ 3,605
Professional and outside services............................. 1,020 2,051 2,707
Insurance..................................................... 65 60 69
Occupancy..................................................... 117 91 100
Other operating............................................... 183 143 159
-------- -------- --------
6,406 5,852 6,640
-------- -------- --------
Operating loss................................................ (6,406) (5,852) (6,640)
-------- -------- --------
Interest income............................................... 2,099 2,795 2,166
Reversal of withholding obligation reserve.................... 66,388 - -
Other income - litigation settlement.......................... - 8,250 -
Other income.................................................. 254 186 194
-------- -------- --------
Income (loss) before income taxes............................. 62,335 5,379 (4,280)
Income tax expense............................................ (225) (205) (235)
-------- -------- --------
Net income (loss)............................................. $ 62,110 $ 5,174 $ (4,515)
===== ===== =====
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 $62,110,000 or $1.34 per share, for the year
ended December 31, 2001. As further described above, 2001 results include
non-recurring other income representing the reversal of the Withholding
Obligation reserve. Excluding this other income, the Company would have reported
a net loss of $4,278,000 for the year ended December 31, 2001.
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, 2000 results include
$8,250,000 of other income principally representing net proceeds received in
connection with the Company's litigation settlement with 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 reflected significant
professional and outside service fees as a result of Supervisory Goodwill
Litigation expenses.
Compensation and benefits were $5,021,000 in 2001, $3,507,000 in 2000 and
$3,605,000 in 1999. The increase in 2001 compared to 2000 is primarily due to an
increase in incentive compensation accrued in 2001 and paid in 2002. The
decrease in 2000 compared to 1999 is primarily due to a decrease in Year 2000
incentive compensation.
Professional and outside services decreased to $1,020,000 in 2001, compared to
$2,051,000 in 2000, and $2,707,000 in 1999. The decreased amounts for the year
2001 compared with the year 2000 and 1999 periods is due to a decrease in
Supervisory Goodwill Litigation expenses which were incurred in the year 2000
and 1999 periods. The amounts in 2000 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 1999 are principally comprised of expenses relating to the
Supervisory Goodwill Litigation. Expenses for professional and outside services
in 2001, 2000 and 1999 do not include costs associated with defending pending
and threatened litigation, which were previously reserved for and are charged
against the litigation reserves when paid.
Occupancy expenses were $117,000 in 2001, $91,000 in 2000 and $100,000 in 1999.
The increase in 2001 compared to 2000 and 1999 is principally due to costs of
office relocation and costs relating to building ownership. Occupancy expenses
have not been reduced by tenant reimbursements or rental income, which are
included with other income in the Consolidated Statement of Operations.
Interest income was $2,099,000 in 2001, $2,795,000 in 2000 and $2,166,000 in
1999. The decrease in 2001 compared to 2000 was principally attributable to a
decreased yield on investments held in 2001 compared with 2000. 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.
Other income of $254,000 for the year ended December 31, 2001, is principally
attributable to rental income earned by the Company during the period of
building ownership and the continued collection of a receivable previously
considered uncollectible. Other income of $8,250,000 in the year ended December
31, 2000, is attributable to the net proceeds received in June 2000, relating to
the SF Holdings litigation settlement as noted above. 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.
The 2001, 2000 and 1999 income tax provisions of $225,000, $205,000 and
$235,000, 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 Part II - 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, 2001 and 2000 with maturity
dates of less than one year consist of the following:
2001 2000
========================== ==========================
Carrying Fair Carrying Fair
Value Value Value Value
----------- ----------- ------------ -----------
(in thousands)
U.S. Treasury Bills........................... $ 40,232 $ 40,245 $ 46,547 $ 46,595
======== ======== ======== ========
Weighted average interest rate................ 1.87% 5.80%
======= =======
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.
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, 2001
and 2000, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2001, 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 for our opinion.
PricewaterhouseCoopers LLP
New York, New York
March 14, 2002
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31
(in thousands, except per share data) 2001 2000 1999
==== ==== ====
Operating expenses:
Compensation and benefits..................................... $ 5,021 $ 3,507 $ 3,605
Professional and outside services............................. 1,020 2,051 2,707
Insurance..................................................... 65 60 69
Occupancy..................................................... 117 91 100
Other operating............................................... 183 143 159
-------- -------- --------
6,406 5,852 6,640
-------- -------- --------
Operating loss................................................ (6,406) (5,852) (6,640)
-------- -------- --------
Interest income............................................... 2,099 2,795 2,166
Reversal of withholding obligation reserve.................... 66,388 - -
Other income - litigation settlement.......................... - 8,250 -
Other income.................................................. 254 186 194
-------- -------- --------
Income (loss) before income taxes............................. 62,335 5,379 (4,280)
Income tax expense ........................................... (225) (205) (235)
-------- -------- --------
Net income (loss)............................................. $ 62,110 $ 5,174 $ (4,515)
===== ===== =====
Earnings per common share:
Net income (loss) - basic..................................... $ 1.34 $ 0.11 $ (0.10)
Net income (loss) - assuming dilution......................... 1.34 0.11 (0.10)
===== ===== =====
Dividends..................................................... $ - $ - $ -
===== ===== =====
Weighted average shares outstanding:
Basic......................................................... 46,209 46,209 44,724
===== ===== =====
Diluted....................................................... 46,314 46,264 44,724
===== ===== =====
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31
(in thousands, except for share amounts) 2001 2000
==== ====
Assets:
Cash and cash equivalents....................................................... $ 6,130 $ 4,844
Investment securities - held to maturity
(market value $40,245 and $46,595, respectively)............................ 40,232 46,547
Investment in SDG, Inc. at cost................................................. 1,250 1,250
Other assets.................................................................... 2,833 461
-------- --------
Total assets.................................................................... $ 50,445 $ 53,102
===== =====
Liabilities and Stockholders' Equity:
Liabilities:
Accounts payable and accrued liabilities........................................ $ 3,267 $ 1,889
Supplemental retirement plan.................................................... 6,682 6,033
Postretirement welfare benefits................................................. 913 1,053
Other liabilities............................................................... 99 90
Litigation reserves............................................................. 1,471 1,746
Withholding obligation reserve.................................................. - 66,388
-------- --------
Total liabilities............................................................... 12,432 77,199
-------- --------
Commitments and contingencies................................................... - -
-------- --------
Stockholders' equity:
Common stock ($0.01 par value, 200,000,000 authorized,
46,335,007 issued)........................................................... 463 463
Paid-in capital................................................................. 547,940 547,940
Accumulated deficit............................................................. (509,743) (571,853)
Treasury stock, at cost 126,488 shares.......................................... (647) (647)
-------- --------
Total stockholders' equity...................................................... 38,013 (24,097)
-------- --------
Total liabilities and stockholders' equity...................................... $ 50,445 $ 53,102
===== =====
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Common Paid-In Accumulated Treasury
(in thousands) Stock Capital Deficit Stock Total
======= ===== ========= ====== ====
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)
Net income................ - - 62,110 - 62,110
--------- ---------- ----------- ---------- ---------
December 31, 2001......... $ 463 $ 547,940 $ (509,743) $ (647) $ 38,013
====== ====== ======= ====== ======
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) 2001 2000 1999
==== ==== ====
Cash flows from operating activities:
Net income (loss)........................................................ $ 62,110 $ 5,174 $ (4,515)
Adjustments to reconcile net income (loss) to net cash (used) provided
by operating activities:
Reversal of withholding obligation reserve........................... (66,388) - -
Accretion of discount - investment securities........................ (2,037) (2,732) (2,133)
Depreciation and amortization........................................ 57 16 16
Changes in other assets and liabilities:
Other assets......................................................... (3) 36 48
Accounts payable and accrued liabilities............................. 1,378 (13) 260
Litigation reserves uses............................................. (275) (237) (93)
Other, net............................................................... 518 346 297
-------- -------- --------
Net cash (used) provided by operating activities......................... (4,640) 2,590 (6,120)
-------- -------- --------
Cash flows from investing activities:
Maturities of investment securities - held to maturity................... 102,765 118,084 108,986
Purchases of investment securities - held to maturity.................... (94,413) (118,639) (102,957)
Purchases of investment securities - available for sale.................. - - (250)
Fixed assets purchase...................................................... (2,434) - -
Other, net............................................................... 8 10 10
-------- -------- --------
Net cash provided (used) by investing activities......................... 5,926 (545) 5,789
-------- -------- --------
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..................... 1,286 2,198 (240)
Cash and cash equivalents at beginning of year........................... 4,844 2,646 2,886
-------- -------- --------
Cash and cash equivalents at end of year................................. $ 6,130 $ 4,844 $ 2,646
===== ===== =====
Supplemental cash flow disclosure:
Income taxes paid........................................................ $ 240 $ 170 $ 233
===== ===== =====
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 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 2002 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 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 contingencies,
as well as pursue all sources for contributions to settlements. The accompanying
consolidated financial statements do not include adjustments that might result
from the ultimate unfavorable outcome of these uncertainties. Although the basis
for the calculation of the litigation reserves 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. For a discussion of
the alleged liabilities, lawsuits and proceedings, and a discussion of the
Supervisory Goodwill Litigation see Note 11.
Note 2 - Summary of Significant Accounting Policies
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
("GAAP"). Certain reclassifications have been made to the prior year
consolidated financial statements to conform with the 2001 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.
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 non-public
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.
AMBASE CORPORATION AND SUSIDIARIES
Notes to Consolidated Financial Statements (continued)
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, 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 and a valuation reserve has been
recorded against net deferred tax assets.
Earnings per share:
Basic earnings per share ("EPS") excludes dilution and is computed by dividing
net income (loss) by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential reduction in EPS that could
occur if options to issue common stock were exercised.
Stock-based compensation:
The Company adopted the disclosure requirements of Financial Accounting
Standards Board 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 pro forma 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.
AMBASE CORPORATION AND SUBSIDIARIES
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:
2001 2000
========================================= =========================================
Carrying Amortized Fair Carrying Amortized Fair
(in thousands) Value Cost Value Value Cost Value
====== ======== ===== ====== ======== =====
Held to Maturity:
U.S. Treasury Bills $ 40,232 $ 40,232 $ 40,245 $ 46,547 $ 46,547 $ 46,595
===== ===== ===== ===== ===== =====
The gross unrealized gains on investment securities at December 31, consist of
the following:
(in thousands) 2001 2000
==== ====
Held to Maturity - Gross unrealized gains........................................... $ 13 $ 48
==== ====
Other investment securities at December 31, 2001 and 2000 consist of convertible
preferred stock and 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, 2001 and 2000.
AMBASE CORPORATION AND SUBSIDIARIES
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:
2001
====================================================
Income Shares Per Share
(in thousands, except per share data) (Numerator) (Denominator) Amount
======== ============ ======
Basic earnings per share:
Net income............................................. $ 62,110 46,209 $ 1.34
===== =====
Effect of Dilutive Securities:
Assumed stock option exercise.......................... 105
----------
Diluted earnings per share:
Net income and assumed conversions..................... $ 62,110 46,314 $ 1.34
===== ===== =====
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, except per share data) (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)
===== ===== =====
Options to purchase common stock of 175,000 shares in 2001, 370,000 shares in
2000 and 280,000 shares in 1999 were excluded from the computation of diluted
earnings per share because these options were antidilutive.
AMBASE CORPORATION AND SUBSIDIARIES
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:
2001 2000 1999
======== ======== ========
Balance at beginning of year............................ 46,208,519 45,348,519 44,533,519
Issuance of common shares.............................. - 860,000 815,000
-------------- -------------- --------------
Balance at end of year................................. 46,208,519 46,208,519 45,348,519
========== ========== ==========
Common Stock balances exclude 126,488 treasury shares at December 31, 2001, 2000
and 1999, 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, 2001, 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 and
expire on February 10, 2006.
Common Stock Repurchase Plan:
The Company's Board of Directors have approved and authorized management to
establish and implement a common stock repurchase plan (the "Repurchase Plan").
The Repurchase Plan is dependent upon favorable business conditions and
acceptable purchase prices for the common stock and allows for the repurchase of
up to 10 million shares of the Company's common stock in the open market. No
purchases had been under the Repurchase Plan as of December 31, 2001.
AMBASE CORPORATION AND SUBSIDIARIES
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) 2001 2000 1999
==== ==== ====
Service cost of current period................................ $ 537 $ 469 $ 470
Interest cost on projected benefit obligation................. 521 468 400
Amortization of unrecognized losses........................... 51 11 56
-------- -------- --------
$ 1,109 $ 948 $ 926
===== ===== =====
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) 2001 2000
==== ====
Projected benefit obligation at beginning of year............................... $ 7,170 $ 5,824
Service cost.................................................................... 537 469
Interest cost................................................................... 521 468
Actuarial (gain) loss, including effect of change in assumptions................ 309 869
Benefits paid................................................................... (460) (460)
-------- --------
Projected benefit obligation at end of year..................................... $ 8,077 $ 7,170
===== =====
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) 2001 2000
==== ====
Actuarial present value of benefit obligations:
Accumulated benefit obligations, fully vested................................... $ 6,310 $ 5,540
===== =====
Projected benefit obligation for service rendered to date....................... $ 8,077 $ 7,170
Unrecognized net loss........................................................... (1,395) (1,137)
-------- --------
Accrued pension costs........................................................... $ 6,682 $ 6,033
===== =====
Major assumptions:
Pre-retirement and postretirement discount rate................................. 7.0% 7.5%
Rate of increase in future compensation......................................... 6.0% 6.0%
===== =====
AMBASE CORPORATION AND SUBSIDIARIES
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 $14,000, $17,000 and
$25,000 in 2001, 2000 and 1999, 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, 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) 2001 2000 1999
==== ==== ====
Interest cost on accumulated postretirement benefit obligation....... $ 5 $ 9 $ 14
Amortization of prior service liability.............................. (86) (82) (75)
Amortization of unrecognized gain.................................... (44) (42) (43)
-------- -------- --------
Net periodic postretirement benefit (income) expense................. $ (125) $ (115) $ (104)
===== ===== =====
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) 2001 2000
==== ====
Accumulated postretirement benefit obligation at beginning of year... $ 70 $ 119
Interest cost........................................................ 5 9
Amendments........................................................... (15) (35)
Actuarial gains, including effect of assumption changes.............. 15 (13)
Plan participant contributions....................................... 56 58
Benefit premiums paid................................................ (70) (68)
-------- --------
Accumulated postretirement benefit obligation at end of year......... $ 61 $ 70
===== =====
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The accrued postretirement benefit liability at December 31 is summarized below:
(in thousands) 2001 2000
==== ====
Accumulated postretirement benefit obligation:
Retirees........................................................................ $ 61 $ 70
-------- --------
Unrecognized net gains.......................................................... 345 405
Unrecognized prior service liability............................................ 507 578
-------- --------
Accrued postretirement benefit liability........................................ $ 913 $ 1,053
===== =====
The accumulated benefit obligation for 2001, 2000 and 1999 was determined using
the projected unit credit method and a discount rate of 7.0%, 7.5% and 7.75%,
respectively. The health care cost trend rates were assumed to be 11% in 2001
gradually declining to 5.0% in 2008 and remaining at that level, thereafter, 6%
in 2000 and 7% in 1999.
Assumed health care cost trend rates could have a significant effect on the
amounts reported. At December 31, 2001 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.
AMBASE CORPORATION AND SUBSIDIARIES
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 2002, the Board of Directors of the Company approved the award of
incentive stock options to certain employees to acquire 700,000 shares of AmBase
Common Stock at exercise prices between $1.09 and $1.19 per share, pursuant to
the 1993 Plan.
AMBASE CORPORATION AND SUBSIDIARIES
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, 2001,
75,000 shares are reserved for issuance under the 1985 Plan.
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, 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
Granted............................................ 280 0.64 - -
Forfeited.......................................... (255) 1.86 - -
-------- ======== ------- =======
Outstanding at December 31, 2001................... 395 $ 1.49 75 $ 0.21
===== ======= ======= =======
Options exercisable at:
December 31, 2001............................. 145 $ 2.85 75 $ 0.21
December 31, 2000............................. 235 2.86 75 0.21
December 31, 1999............................. 148 2.62 935 0.18
===== ======= ======= =======
1993 Stock
Incentive Plan
===========
Weighted average fair value of options granted during:
2001..................................................... $ 0.25
2000..................................................... 0.45
1999..................................................... 1.25
======
AMBASE CORPORATION AND SUBSIDIARIES
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,
2001, 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 3 years $ 0.21 75 $ 0.21
$0.60 to $0.66 220 4 years 0.66 - -
$0.95 to $1.05 60 4 years 1.03 30 1.03
$2.56 to $3.65 70 4 years 2.88 70 2.88
$4.02 45 1 years 4.02 45 4.02
-------- ===== ===== -------- =======
Total 470 220
===== =====
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 2001, 2000
and 1999. The fair value of stock options granted by the Company in 2001, 2000
and 1999 used to compute pro forma net income (loss) 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 2001, 2000, and 1999, respectively: dividend
yield 0% for all years, expected historical volatility of 0.51, 0.44 and 0.46,
risk-free interest rates of 5.04%, 5.80% and 6.07%, 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 pro forma 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
2001, 2000 and 1999, 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 pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information for the years ended December 31 follows:
(in thousands, except per share data) 2001 2000 1999
==== ==== ====
Net income (loss)
As reported..................................................... $ 62,110 $ 5,174 $ (4,515)
Pro forma....................................................... 62,068 5,090 (4,651)
===== ===== =====
Per share data
As reported..................................................... $ 1.34 $ 0.11 $ (0.10)
Pro forma....................................................... 1.34 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) 2001 2000 1999
==== ==== ====
Income tax expense - current state and local.................. $ (225) $ (205) $ (235)
==== ==== ====
The components of pretax income (loss) and the difference between income taxes
computed at the statutory federal rate of 35% in 2001, 2000 and 1999, and the
provision for income taxes for the years ended December 31 follows:
(in thousands) 2001 2000 1999
==== ==== ====
Income (loss) before income taxes............................... $ 62,335 $ 5,379 $ (4,280)
===== ==== ====
Tax (expense) benefit:
Tax at statutory federal rate................................... $ (21,817) $ (1,883) $ 1,498
Reversal of Withholding Obligation reserve...................... 23,236 - -
Accounting loss benefit not recognized.......................... (1,419) - (1,498)
Accounting loss benefit recognized.............................. - 1,883 -
State income taxes.............................................. (225) (205) (235)
-------- -------- --------
$ (225) $ (205) $ (235)
===== ===== =====
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 then
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's election decision, 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 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 approximately $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.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Based upon the Company's federal income tax returns as filed from 1993 to 2000
(subject to IRS audit adjustments), and excluding the NOL carryforwards
generated from the Company's tax basis in Carteret/Carteret FSB, as noted above,
at December 31, 2001 the Company has NOL carryforwards available to reduce
future federal taxable income, which expire if unused, as follows:
2008 $1,300,000
2009 6,900,000
2010 5,300,000
2012 1,100,000
2018 5,400,000
2019 4,000,000
2020 2,600,000
---------
$26,600,000
===========
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 AMT credit carryforwards ("AMT Credits"), which are
not subject to expiration. As further discussed below the Company has filed
several carryback claims with the IRS seeking to realize approximately $8
million of the $21 million of AMT Credits.
The Company has filed several carryback claims with the IRS (the "Carryback
Claims") seeking refunds from the IRS alternative minimum tax and other federal
income taxes paid by the Company in prior years plus applicable IRS interest.
The Carryback Claims are currently being reviewed by the IRS. The Company can
give no assurances that the Carryback Claims will be allowed by the IRS, the
final amount of the refunds, if any, or when they might be received.
The Company has calculated a net deferred tax asset of $30 million and $27
million as of December 31, 2001 and 2000, 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
Rent expense charged to earnings was $43,000, $67,000 and $67,000 for the years
ended December 31, 2001, 2000 and 1999, respectively.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 11 - Legal Proceedings
(a) The Company is or has been a party 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"), of
approximately $2.4 million plus interest, 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 (thereby nullifying it) and
ordered a new trial. Subsequent to the Court's vacatur of the jury's verdict in
January 2001 the Court dismissed the Company's counterclaims for fraud and
reformation. A second jury trial was held commencing on November 5, 2001 which
resulted in a verdict in favor of the Company. Manley has filed a Notice of
Appeal and a Fed. R. Civ. P. 59 motion seeking to set aside this second verdict.
In March 2002 the Court denied Manley's Fed. R. Civ. P. 59 motion. The Company
intends to vigorously oppose the appeal.
The allegations and claims against the Company, as noted above, are material
and, if successful, could result in substantial judgments against the Company.
Due to the nature of these proceedings, the Company and its counsel are unable
to express any opinion as to their probable outcome.
(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.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
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.
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. The Company
continues to await a decision by Senior Judge Smith on the Company's case. No
assurance can be given regarding the ultimate outcome of the litigation.
On April 3, 2001 the United States Court of Appeals for the Federal Circuit
("Federal Court of Appeals") issued a decision in the case of California 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 Court of
Federal Claims dated April 16, 1999, and remanded the case back to the Court of
Federal Claims for a further determination of damages.
Both the Court of Federal Claims and the Federal Court of Appeals have continued
to issue decisions in cases that involve claims against the United States based
upon its breach of its contracts with savings and loan institutions through its
1989 enactment of FIRREA. The Trial court and appellate decisions in California
Federal as well as other case decisions are publicly available, may be relevant
to the Company's claims, but are not necessarily indicative of the ultimate
outcome of the Company's actions.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(c) Other
AmBase Corporation v. City Investing Company Liquidating Trust, et al. - 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. On March 19, 2001 the Trust filed its reply to the Company's
opposition. On May 30, 2001, the Company submitted a letter to Judge Stanton,
before whom the case is docketed, acknowledging that the Tax Court had ruled
against the IRS on the issue of whether or not any withholding obligation was
due, and that this decision, once finalized, would render the declaratory
judgment portion of the Company's action against the Trust moot. On October 26,
2001, a pre-trial conference was held before Judge Stanton, during which he
authorized the Company to supplement its prior opposition to the pending motion
to dismiss. Those supplemental memoranda and affidavits were filed in November
2001. Thereafter, the Trust filed its reply. On January 11, 2002 the NY Court
dismissed the Company's Complaint. The Company has timely filed a Fed. R. Civ.
P. Rule 59 motion ("Rule 59 Motion") seeking to set aside the NY Court's
decision to dismiss the Complaint which was subsequently responded to by the
Trust. In February 2002 the NY Court denied the Company's Rule 59 Motion. The
Company has subsequently filed on appeal of the NY Court decision, to the Second
Circuit Court of Appeals. No assurance can be given regarding the ultimate
outcome of this litigation.
AmBase Corporation v. City Investing Company Liquidating Trust, et al. Marshall
Manley litigation - On November 29, 2001 the Company filed a Complaint in the
United States District Court for the Southern District of New York seeking a
determination that the Trust, as a successor to City Investing Company, should
be liable for the costs and expenses (as well as any verdict sum should Manley
prevail on appeal) associated with the lawsuit Manley commenced against the
Company as referred to above. The Trust initially moved to dismiss the action
and at the Company's request converted the motion to summary judgment. While no
assurances can be given, the Company intends to vigorously pursue this claim.
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 2001 and 2000 cost for the
privately placed shares as described in Note 3. The carrying value of applicable
other liabilities approximates their fair value.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 13 - Property Owned
In April 2001, the Company purchased a 14,500 square foot office building in
Greenwich, CT for $2.4 million. The Company utilizes 2,100 square feet for its
executive offices and leases the remaining approximately 12,400 square feet of
the office space to unaffiliated third parties.
The building is carried at cost, net of accumulated depreciation of $42,000 at
December 31, 2001 and is included in other assets in the accompanying
consolidated balance sheet. Depreciation expense is recorded on a straight-line
basis over 39 years.
Future minimum lease payments to be received from operating leases expiring at
various dates through 2006 are as follows (in thousands):
2002............................................... $ 290
2003............................................... 255
2004............................................... 159
2005............................................... 165
2006 and thereafter................................ 84
-----
Total.............................................. $ 953
=====
Certain of the leases contain provisions for rent escalation based on increases
in costs incurred by the Company. Rental income, including tenant reimbursables,
from these operating leases for the year ended December 31, 2001 was $179,000.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
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
===== ===== ===== ===== =====
2001:
Operating expenses...................... $ 1,038 $ 1,236 $ 1,172 $ 2,960 $ 6,406
---------- ---------- ---------- ---------- ----------
Operating loss.......................... (1,038) (1,236) (1,172) (2,960) (6,406)
Interest income......................... 531 782 432 354 2,099
Reversal of withholding obligation reserve - 66,388 - - 66,388
Other income............................ 43 56 67 88 254
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes....... (464) 65,990 (673) (2,518) 62,335
Income tax expense........................ (55) (55) (44) (71) (225)
---------- ---------- ---------- ---------- ----------
Net income (loss)....................... $ (519) $ 65,935 $ (717) $ (2,589) $ 62,110
===== ===== ===== ===== =====
Earnings per common share:
Net income (loss) - basic............... $ (0.01) $ 1.43 $ (0.02) $ (0.06) $ 1.34
Net income (loss) - assuming dilution... (0.01) 1.42 (0.02) (0.06) 1.34
===== ===== ===== ===== =====
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
===== ===== ===== ===== =====
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 May 17, 2002,
under the captions "Item 1 - Election of Directors" and "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 May 17, 2002, 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 May 17, 2002, 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
None.
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..................................................................9
Consolidated Statements of Operations.............................................................10
Consolidated Balance Sheets.......................................................................11
Consolidated Statements of Changes in Stockholders' Equity........................................12
Consolidated Statements of Cash Flows.............................................................13
Notes to Consolidated Financial Statements........................................................14
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), as amended March 6, 2001
(incorporated by reference to Exhibit 10-G to the Company's
Annual Report on Form 10-K for the year ending December 31,
2000) and as amended December 16, 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 did not file a Current Report on Form 8-K during the quarter
ended December 31, 2001.
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 27th day of March
2002.
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 on the dates indicated.
RICHARD A. BIANCO JOHN P. FERRARA
Chairman, President and Vice President, Chief Financial Officer
Chief Executive Officer and Controller
Date: March 27, 2002 (Principal Financial and
Accounting Officer)
Date: March 27, 2002
JOHN B. COSTELLO ROBERT E. LONG
Director Director
Date: March 27, 2002 Date: March 27, 2002
MICHAEL L. QUINN
Director
Date: March 27, 2002
AMBASE CORPORATION AND SUBSIDIARIES
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 2002 Annual Meeting is currently AmBase Corporation
scheduled to be held at 9:00 a.m. Eastern 100 Putnam Green, 3rd Floor
Daylight Time, on Friday, May 17,2002, at: Greenwich, CT 06830-6027
(203) 532-2000
Hyatt Regency Hotel
1800 East Putnam Avenue
Greenwich, CT 06870
Stockholder Inquiries
=====================
Common Stock Trading Stockholder inquiries,
==================== including requests for the
following: (i) change of address;
AmBase stock is traded through one or more (ii) replacement of lost stock
market-makers with quotations made available certificates; (iii) Common Stock
in the "pink sheets" published by the name registration changes;
National Quotation Bureau, Inc. (iv) Quarterly Reports on
Form 10-Q; (v) Annual Reports on
Form 10-K; (vi) proxy material;
Issue Abbreviation Ticker Symbol and (vii) information regarding
stockholdings,should be directed
Common Stock AmBase ABCP to:
American Stock Transfer
and Trust Company
Transfer Agent and Registrar 59 Maiden Lane
============================ New York, NY 10038
Attention: Shareholder Services
American Stock Transfer and Trust (800) 937-5449 or (718) 921-8200
Company Ext. 6820
59 Maiden Lane
New York, NY 10038 In addition, the Company's public
Attention: Shareholder Services reports, including Quarterly
(800) 937-5449 or (718) 921-8200 Ext. 6820 Report on Form 10-Q, Annual
Report 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.
Independent Accountants Number of Stockholders
======================= ======================
PricewaterhouseCoopers LLP As of January 31, 2002, there
1177 Avenue of the Americas were approximately 17,900
New York, NY 10036 stockholders
EXHIBITS ATTACHED WITH THIS FORM 10-K
Exhibit No. Description
- ----------- -----------
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
10 G. Amendment to Employment Agreement