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EX-32.1 - EXHIBIT 32.1 - OLD STONE CORPv302426_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - OLD STONE CORPv302426_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Quarterly Period Ended September 30, 2009

or

 

¨Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period of ________________ to ___________________

 

Commission File Number 0-8016

 

OLD STONE CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

  Rhode Island 05-0341273
 

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification Number)
     
  One Financial Plaza, 24th Floor
Providence, Rhode Island
02903
  (Address of Principal Executive Offices) Zip Code

 

  (401) 351-6117
  (Registrant's Telephone Number, Including Area Code)

 

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 and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes:                                                                               No: x

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes:                                                                              No:

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

 

Yes: x                                                                              No:

 

The number of shares outstanding of the registrant's Common Stock, $1.00 par value, as of September 30, 2009: 8,297,046.

 

 
 

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

 

OLD STONE CORPORATION

BALANCE SHEETS

($ thousands)

  

   September 
30, 2009
   December 31, 
   (unaudited)   2008 
         
ASSETS          
           
Cash  $1,419   $1,518 
Cash-Escrow (restricted, $6,140 in 2009; $6,240 in 2008)   6,363    6,461 
Other Assets   1    22 
           
Total  $7,783   $8,001 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
Liabilities:          
Redemption of Preferred stock, Series B  $6,140   $6,240 
           
Total   6,140    6,240 
           
Redeemable preferred stock:          
Preferred stock, Series B, $1 par value; 64,481 shares authorized, issued and outstanding (liquidation value $1,290)   1,290    1,290 
           
Stockholders' equity:          
Common stock, $1 par value, 25,000,000 shares authorized; 8,351,046 shares issued   8,300    8,300 
Additional paid-in capital   91,079    91,079 
Paid-in surplus   30,000    30,000 
Accumulated deficit   (127,883)   (127,765)
Treasury stock, at cost, 54,000 shares   (1,143)   (1,143)
           
Total   353    471 
           
Total  $7,783   $8,001 

 

The accompanying notes are an integral part of the financial statements.

 

- 2 -
 

 

OLD STONE CORPORATION

STATEMENTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Unaudited)

($ thousands) 

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2009   2008   2009   2008 
Revenues and other income:                    
Interest and dividend income  $-   $32   $3   $113 
Other income   -    -    -    - 
                     
Total   -    32    3    113 
                     
Expenses:                    
Professional fees   8    36    8    63 
Occupancy expense   0    1    0    2 
Other expense   25    26    82    81 
Directors fees   -    -    31    30 
                     
Total   33    63    121    176 
                     
Tax expense, current   -    -    -    1 
                     
Net loss  $(33)  $(31)  $(118)  $(64)
                     
Net loss available for                    
Common Shareholders  $(72)  $(69)  $(234)  $(180)
                     
Loss per common share   (0.01)   (0.01)   (0.03)   (0.02)
                     
Average common shares outstanding   8,297,046    8,297,046    8,297,046    8,297,046 

 

The accompanying notes are an integral part of the financial statements.

 

- 3 -
 

 

OLD STONE CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Unaudited)

($ thousands)

 

       Additional       Accumu-         
   Common   paid-in   Paid-in   lated   Treasury     
   stock   capital   surplus   deficit   stock   Total 
                               
Balance, December 31, 2007  $8,300   $91,079   $30,000   $(127,613)  $(1,143)  $623 
                               
Net loss                  (64)        (64)
                               
Balance, September 30, 2008 (unaudited)  $8,300   $91,079   $30,000   $(127,677)  $(1,143)  $559 
                               
Balance, December 31, 2008  $8,300   $91,079   $30,000   $(127,765)  $(1,143)  $471 
                               
Net loss                  (118)        (118)
                               
Balance, September 30, 2009 (unaudited)  $8,300   $91,079   $30,000   $(127,883)  $(1,143)  $353 

 

The accompanying notes are an integral part of the financial statements.

 

- 4 -
 

 

OLD STONE CORPORATION

STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Unaudited)

($ thousands)

 

   2009   2008 
         
Cash flows from operating activities:          
Net loss  $(118)  $(64)
Adjustments to reconcile to net cash:          
Increase in:          
Other assets   -    - 
Other liabilities   0    41 
Decrease in:          
Other assets   21    40 
Other liabilities   -    - 
           
Net cash provided by (used in) operating activities   (97)   17 
           
Cash flows from investing activities:          
           
Increase in restricted escrow   98    241 
           
Cash provided by investing activities   98    241 
           
Cash flows from financing activities:          
Payments made on amounts due holders of Series B Preferred stock   (100)   (333)
           
Cash used in financing activities   (100)   (333)
           
Net decrease in cash and cash equivalents   (99)   (75)
           
Cash and cash equivalents, beginning   1,518    1,772 
Cash and cash equivalents, ending  $1,419   $1,697 

 

The accompanying notes are an integral part of the financial statements.

 

- 5 -
 

 

OLD STONE CORPORATION

NOTES TO FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(Unaudited)

 

1. Description of business, basis of presentation and summary of significant accounting policies:

 

Description of business:

 

Old Stone Corporation (the “Company”) was originally formed as a unitary savings and loan holding company which conducted substantially all of its business through its ownership of Old Stone Bank (a federal savings bank) and subsidiaries (together, the “Bank”). On January 29, 1993, the Office of Thrift Supervision of the United States Department of the Treasury (“OTS”) placed the Bank into receivership due to the Bank’s under capitalization. The OTS created a new institution, Old Stone Federal Savings Bank (“Old Stone Federal”), to assume all deposits and certain other liabilities and assets of the Bank. The Resolution Trust Corporation (“RTC”) was appointed receiver to handle all matters related to the Bank and as conservator of Old Stone Federal. A substantial portion of the assets and liabilities of Old Stone Federal was sold by the RTC to another Rhode Island financial institution in 1994. The Federal Deposit Insurance Corporation (“FDIC”), as successor-in-interest to the RTC, continues to act as conservator of the remaining assets and liabilities of Old Stone Federal.

 

As a result of the receivership of the Bank, the Company has undergone material changes in the nature of its business and is no longer operating as a savings and loan holding company. The Company’s operations since receivership of the Bank have been related to activities associated with its litigation against the United States in connection with actions that took place prior to the Bank closing (the “Claims Court Litigation” or the “Litigation”), the redemption of a major portion of its Series B preferred stock, and exploration and evaluation of other potential business activities.

 

Basis of presentation:

 

The accompanying condensed balance sheet as of December 31, 2008, has been derived from audited financial statements as of December 31, 2008 and the September 30, 2009 unaudited interim condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. These condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s latest Form 10-K. In the opinion of management, the accompanying condensed financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position as of September 30, 2009 and the results of operations for the three and nine months ended September 30, 2009 and 2008 and the cash flows for the nine months ended September 30, 2009 and 2008.

 

The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

 

Use of estimates:

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

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2. Cash and cash equivalents:

 

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At September 30, 2009 and December 31, 2008, cash and cash equivalents totaled $1.419 million and $1.518 million, respectively. On September 30, 2009, deposits in a federally regulated and insured bank were $42 thousand and the remainder was invested in a money market account collateralized by Government and Agency securities. The amount of deposits in bank accounts is less than the current federal insurance limit.

 

Escrow deposits held for the benefit of preferred shareholders notified of redemption, but as of yet unclaimed, are held in a money market escrow fund invested in federal securities and are recorded as Cash – restricted escrow.

 

3. Convertible Preferred Stock:

 

The Company discontinued dividends to holders of its Cumulative Voting Convertible Preferred Stock, Series B (the "Preferred Stock") during the fourth quarter of 1991 and, during the pendency of the Claims Court Litigation, was unable to pay any dividends on such stock. As a result of the failure to pay dividends on the Preferred Stock for more than four quarters, the holders of the Preferred Stock collectively are entitled to elect a number of directors of the Company constituting twenty percent (20%) of the total number of its directors at the next meeting of stockholders at which directors are to be elected. Until the aggregate deficiency is declared and fully paid on the Preferred Stock, the Company may not declare any dividends or make any other distributions on or redeem the Common Stock. The total amount of accumulated unpaid dividends as of December 31, 2008 was $2.670 million, after payment of accrued dividends on the Preferred Stock called for redemption as described below. The total amount of accumulated unpaid dividends at September 30, 2009 totaled $2.786 million.

 

Pursuant to the Certificate establishing the terms of the Preferred Stock (the “Certificate”), the Company was required to begin redeeming one-tenth of the Preferred Stock as of February 2002 and to continue such redemption for each of the subsequent nine years until completed. This obligation requires the Company to redeem 10% of the shares of Preferred Stock at $20.00 per share each such year. The Certificate also includes provisions relating to the redemption of the Preferred Stock at the Company’s option. At the time of any such redemption, in addition to paying the stated value or other required redemption price of such stock, the Company must pay all accrued and unpaid dividends on such shares being redeemed. Prior to the end of the Claims Court Litigation, the Company did not have funds with which to redeem any of the outstanding shares of Preferred Stock.

 

Following receipt of the final award from the Claims Court Litigation, the Board of Directors approved a partial redemption of the Company’s Preferred Stock on May 31, 2007. Pursuant to Section 3 of the Certificate, the Company called for redemption of approximately 982,433 shares of the 1,046,914 outstanding shares of Preferred Stock on August 15, 2007 (“Redemption Date”). The redemption price was the equivalent of $57.92 for every full share.

 

The total redemption amount was $56,900,000, which includes redemption of the stated value of the preferred stock, the redemption premium payable on shares redeemed at the Company’s option, and the cumulative dividend on the Preferred Stock which was redeemed. As of September 30, 2009, an amount of $50,759,139 had been paid to shareholders of the Preferred Stock who had exchanged 876,405 shares of the Preferred Stock for the cash redemption.

 

Payment for the shares of Preferred Stock submitted for redemption are being made upon receipt of the share certificates representing the Preferred Stock and a Letter of Transmittal, completed and executed as set forth therein, beginning August 15, 2007. Other than the right to receive the redemption payments, all rights and preferences as to the redeemed shares, including accrual of dividends, ceased on and after August 15, 2007.

 

- 7 -
 

 

As described above, the Company has been unable to fully pay cumulative dividends on the Series B preferred stock outstanding. Management does not expect the Company to be able to fully meet its mandatory redemption obligations related to the Preferred Stock. Consequently, if the Company were to be dissolved or liquidated, there would be insufficient funds to redeem or otherwise pay the liquidation preference of the Company’s remaining Preferred Stock or to make any distribution to the holders of Common Stock.

 

4. Loss per share applicable to common shareholders:

 

Earnings per share applicable to common shareholders for the nine months ended September 30, 2009 and September 30, 2008 includes an amount of preferred dividend of $116 thousand and $116 thousand, respectively.

 

5. Income taxes:

 

Loss carry forwards for federal tax purposes as of December 31, 2008 have the following expiration dates:

 

   Amount 
Expiration Date  (in dollars) 
2015  $568,428 
2016   283,952 
2017   193,494 
2018   113,465 
2019   30,138 
2020   29,063 
2021   145,392 
2022   41,723 
2023   29,492 
2024   104,351 
2025   21,736 
2026   39,111 
2027   712,165 
2028   151,348 

 

The Company’s net operating loss carryforwards shown in the schedule above would provide Federal tax reduction benefits if the Company were to generate net operating revenue in the future. Valuation allowances in amounts equal to these tax benefits reflect the uncertainty of their utilization in the future. The deferred tax assets (i.e., benefits) and the companion valuation allowances associated with federal taxes have been calculated at a tax rate of 34.0%.

 

Deferred tax assets associated with State taxes have been calculated at a tax rate of 9.0%. The amount of these deferred tax assets are $93,843 and $92,587 at September 30, 2009 and December 31, 2008, respectively. Companion valuation allowances of equal amount offset the deferred tax assets for each of those periods.

 

The combined amounts of deferred federal and State tax assets and companion valuation allowances are shown in the table below.

 

   September 30,   December 31, 
   2009   2008 
         
Deferred federal and state tax assets associated with net operating loss carryforwards, not recognized  $971,790   $930,311 
Valuation allowance, reflecting uncertainty of utilizing net operating loss carryforwards   (971,790)   (930,311)

 

- 8 -
 

 

The tax loss carry forward schedule and the schedule of deferred tax asset and valuation allowance both shown above represent tax losses from operations reported in the Company’s tax returns for years 1995 through 2008. Estimates for 2009 tax results are based on results of operations as recorded in the financial statements, as opposed to results reported within annual tax returns as for the years 2008 and before.

 

Other tax loss carry forwards arising from receivership activities pertaining to Old Stone Federal Savings Bank, in the amount of $53,288,825, which are assumable by the Company, are not included in the schedules above. This additional tax loss carryforward would create a deferred tax asset of $18,118,201, at a 34.0% federal tax rate, and an offsetting valuation allowance of equal amount.

 

6. Treasury stock:

 

Capital accounts include 54,000 shares of Treasury stock. There is no plan to reissue any shares of Treasury stock.

 

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SCHEDULE I

OLD STONE CORPORATION

 

Valuation and Qualifying Accounts

Periods Ended September 30, 2009 (Unaudited) and December 31, 2008

 

Valuation Allowance Against Deferred Tax Assets:

 

   Balance         
   at beginning   Increase to   Balance at 
   of Period   allowance   end of period 
             
September 30, 2009  $930,311   $41,479   $971,790 
                
December 31, 2008  $867,870   $62,441   $930,311 
- 10 -
 

 

ITEM 2.     MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Background and Context for Management Discussion of Results of Operations

 

Since December 31, 2001, the Company has had no material operations other than management of the Litigation described in, among other places, Part I, Item 3 of its Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (the “2007 10-K”). The ultimate outcome of this Litigation, the amount received in the award, expenses associated with the Litigation, and the partial redemption of the Company’s preferred stock associated with it are described in the 2007 10-K.

 

Remaining Litigation-related proceeds are not expected to be sufficient to redeem or otherwise pay the liquidation preference of the Company’s remaining preferred stock in full.

 

Comparison of Period Ended September 30, 2009 versus 2008:

 

Revenues for the three and nine months ending September 30, 2009 are generated primarily from two sources: first, interest income from the investment of a portion of the net litigation proceeds which is now maintained as an operating reserve; and second, interest income from funds remaining in a trustee account within which $56,900,000 was deposited in 2007 for the purpose of effecting a partial redemption of the Company’s preferred stock. As of September 30, 2009, approximately 89% of the preferred shares redeemed had been exchanged and paid from that trustee account.

 

Funds in the trustee account described above are held in a money market deposit arrangement which is fully collateralized by short-term U.S. Treasury and Agency securities.

 

Expenses for the three and nine months ended September 30, 2009 are the result of recurring expenditures for professional fees relating to legal, tax and accounting services, shareholder accounting services, directors’ fees and an insurance policy. While these expenses are periodic and recurring, they are not incurred every month, and are paid on a current basis as they are received.

 

Quarter comparison:

 

Interest income was less than $1 thousand in the quarter ended September 30, 2009 compared to $32 thousand in the same quarter of 2008. The significant decline in interest income is due to the significant decline in short term interest rates since the last quarter of 2008.

 

Since 2008, the largest component of operating expense has been shareholder related data processing fees, followed by directors’ fees.

 

Professional fees for the quarter ended and nine-months ended September 30, 2009 decreased $28 thousand and $55 thousand, respectively, when compared to the quarter and nine-months ended September 30, 2008 due to the timing of when such services were rendered.

 

Net loss for the three months ended September 30, 2009 was $33 thousand compared to a net loss of $31 thousand for the same quarter in 2008. Net loss available for common shareholders for the quarter ended September 30, 2009 totaled $72 thousand, or approximately $.01 per common share, compared to a net loss of $69 thousand, or approximately $.01 per common share, for the same quarter in 2008.

 

- 11 -
 

 

Year-to-date comparison:

 

Interest income was $3 thousand for the nine month period ended on September 30, 2009 compared to $113 thousand for the first nine months of 2008.

 

Since 2008, the largest component of operating expense has been shareholder related data processing fees, followed by directors’ fees. The nine month average for each category is approximately $60 thousand and $45 thousand respectively.

 

Net loss for the nine months ended September 30, 2009 was $118 thousand, compared to net loss of $64 thousand for the same period in 2008. Net loss available for common shareholders for the nine month period ended September 30, 2009 totaled $235 thousand, or approximately $.03 per common share, compared to net loss of $180 thousand, or $.02 per common share, for the first nine months of 2008.

 

Risk Factors

 

Investors should be alerted to numerous risks inherent in the continuation of the Company’s operation and in the uncertainty of finalizing its business. See Part II, Item 1, Legal Proceedings. These risks include:

 

·The Company has no operations and generates no revenues. There are no funds remaining with which to pay dividends on our Common Stock. There is virtually no likelihood that, after payments to creditors and holders of our Preferred Stock, there will be any funds available for the benefit of Common Shareholders.

 

·It is possible that there may be some funds remaining, after partial redemption of the Preferred Stock that began on or about August 15, 2007, to pay to the holders of the remaining fractional interest in the Preferred Stock at a later time; however, there is no guarantee that any such payment will be made. If such a future payment is made with respect to remaining Preferred Stock, it may not be significant. The Company does not anticipate having funds to be able to redeem, or otherwise pay the liquidation preference of, the Preferred Stock in full.

 

·There are significant expenses that continue to accrue even though the litigation is completed. See the Company’s Annual Report on Form 10-K for the year ended December 31, 2008: Item 3 “Legal Proceedings”; Item 5 “Market for Registrant’s Common Equity and Related Stockholder Matters”; Item 6 “Selected Financial Data”; Item 11 “Executive Compensation”; Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; and Item 13 “Certain Relationships and Related Transactions”.

 

·In addition to the above issues, there exists the possibility that the litigation award may be subject to federal and state tax claims, as well as claims of other outside parties, such as federal regulatory agencies, former business associates of the Bank and the Company, former employees or retirees, and others. For example, the Federal Deposit Insurance Corporation (“FDIC”), on behalf of Old Stone Bank, may assert a claim to a portion of any tax savings realized by the Company from the use of any of its net operating losses. Based on consultation with tax advisors, the Company does not believe the award should be subject to tax claims.

 

All of the above risks should be taken into consideration in deciding whether to invest in any of our securities. There can be no guarantee that the securities will have any value in the future.

 

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ITEM 4.     CONTROLS AND PROCEDURES

 

As of the end of the period covered by this report, the Company carried out an evaluation, with the participation of its President and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. For the year ended December 31, 2007, the Company’s receipt of the award under the Claims Court Litigation described elsewhere in this report, and its subsequent redemption of a portion of its outstanding Preferred Stock, resulted in the Company not being eligible to qualify as an “inactive registrant” under Rule 3-11 of Regulation S-X for the fiscal year, and as a result, the Company was required to engage an auditor to audit its financial statements for such fiscal year for the first time in recent years. The Company was unable to complete the audit process in the time periods specified in the Commission’s rules and forms for the filing of its Annual Report on Form 10-K for the year ended December 31, 2007. In addition, the Company has been unable to file periodic reports due after the 2007 Form 10-K (including this report) within the time period specified in the Commission’s rules and forms. As a result of these delays, and based upon the evaluation described above, the Company’s President and Treasurer concluded that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this report.

 

In addition, the Company’s management, with the participation of its President and Treasurer, has evaluated whether any change in the Company’s internal control over financial reporting (as defined by Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the President and Treasurer have concluded that there has been no change in the Company’s internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

  

PART II- OTHER INFORMATION

 

ITEM 1.     LEGAL PROCEEDINGS

 

On September 16, 1992, the Company and the Bank (“Plaintiffs”) instituted a suit against the United States (“Defendant”) in the U.S. Court of Federal Claims (“Claims Court Litigation”). In connection with certain government-assisted acquisitions by Plaintiffs in the 1980’s, the Defendant, through its agencies the Federal Home Loan Bank Board (“FHLBB”) and the Federal Savings and Loan Insurance Corporation (“FSLIC”), in exchange for the Bank’s purchasing certain assets and assuming certain liabilities of two FSLIC-insured thrift institutions supervised by the FHLBB, agreed among other things to provide Plaintiffs with certain valuable capital credits and authorized Plaintiffs to treat those credits and supervisory goodwill as regulatory capital to be amortized over a period of 25 to 30 years on the Bank’s regulatory financial statements. Furthermore, the Company entered into a Net Worth Maintenance Stipulation in which it agreed to maintain the net worth of the Bank at agreed upon regulatory levels, which included the capital credits and supervisory goodwill in the calculation thereof. 

 

- 13 -
 

 

Following the passage of the Financial Institutions Reform, Recovery, and Enforcement Act in August, 1989, the OTS (successor in interest to the FHLBB) required the Bank to discontinue treating these capital credits and supervisory goodwill as part of regulatory capital and caused the Bank to write off immediately approximately $80 million of such capital credits and supervisory goodwill. Based upon these developments, in the Claims Court Litigation, Plaintiffs alleged breach of contract by the United States resulting in substantial injury to Plaintiffs, effecting a taking of Plaintiffs’ property without just compensation, and unjustly enriching Defendant at the expense of Plaintiffs. Plaintiffs sought compensation for the damages caused by the breach, just compensation for the property taken, and disgorgement of the amounts by which the Defendant was unjustly enriched. The Defendant filed a counterclaim against the Company for alleged breach of the Company’s Net Worth Maintenance Stipulation. The Company denied the allegations in such counterclaim.

 

Following the Bank’s being placed in receivership, the Bank’s claims and the claims of the Company were split into two separate actions. The Company’s claims were separate and distinct from the claims of the Bank. The FDIC served as Receiver for the Bank and maintained the Bank’s claims against the Defendant until a settlement was reached between the Company and the FDIC in 2003, according to which the Bank’s claims were dismissed from the litigation in exchange for certain tax considerations in the event of a recovery. See Part 1. Item II under the heading “Risk Factors”.

 

On February 27, 1998, the Company filed a motion for summary judgment on liability which was granted by the Court in May 2003 and the matter was set down for trial in on the amount of damages to be awarded. After hearing testimony and reviewing documentation presented at trial, the Court issued a decision in November 2004 awarding the Company $192.5 million. The Defendant appealed this decision to the U.S. Federal Circuit Court of Appeals, a three-judge panel of which issued a decision in May 2006, affirming the trial court’s award of $74.5 million to the Company, but reversing the trial judge’s additional award of $118 million. The Company filed a petition to the Federal Circuit Court of Appeals in July 2006 seeking reconsideration of the panel’s decision or rehearing by the Federal Circuit en banc. The Defendant did not petition for reconsideration. On September 21, 2006, the Company’s petition was denied by the Federal Circuit Court. The Company’s petition for a writ of certiorari to the U.S. Supreme Court was denied on March 19, 2007. The government has paid the Company the full amount owed of $74,563,000. The case is now concluded.

 

For further information on the Claims Court Litigation, including information relating to the use of a portion of the proceeds from the Litigation to repay certain accrued expenses and fees, please refer to the Company’s Reports on Form 8-K filed November 22, 2004, June 1, 2006, July 11, 2006, October 2, 2006 and March 19, 2007 and the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

 

ITEM 1A.     RISK FACTORS

 

Please see Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Risk Factors” for a discussion of the risks that holders of Company securities should consider.

 

- 14 -
 

 

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES/

PARTIAL REDEMPTION OF PREFERRED SERIES B SHARES

 

The Company discontinued dividends to holders of its Cumulative Voting Convertible Preferred Stock, Series B (“Preferred Stock”) during the fourth quarter of 1991 and, during the pendency of the Claims Court Litigation, was unable to pay any dividends on such stock. As a result of the failure to pay dividends on the Preferred Stock for more than four quarters, the holders of the Preferred Stock collectively are entitled to elect a number of directors of the Company constituting twenty percent (20%) of the total number of directors of the Company at the next meeting of stockholders at which directors are to be elected. Until the aggregate deficiency is declared and fully paid on the Preferred Stock, the Company may not declare any dividends or make any other distributions on or redeem the Common Stock. The total amount of the arrearage as of September 30, 2009 was $2.786 million, after taking into account accrued dividends paid on the portion of the Preferred Stock called for redemption as discussed below.

 

Following receipt of the final award from the Claims Court Litigation, the Board of Directors on May 31, 2007 approved a partial redemption of the Company’s Preferred Stock. Pursuant to Section 3 of the Certificate establishing the terms of the Preferred, Stock, the Company called for redemption approximately 982,487 of the 1,046,914 outstanding shares of Preferred Stock on August 15, 2007 (the “Redemption Date”), by redeeming a fractional interest of each share outstanding.

 

Payment was made on a pro rata basis to all shareholders of record of the Preferred Stock, such that for every share held, 0.9384 shares of Preferred Stock were redeemed and 0.0616 shares remain outstanding. The redemption price was $54.35 for each 0.9384 share of the Preferred Stock held, an amount which included accrued dividends through the Redemption Date on the amount being redeemed. This redemption price was equivalent to $57.92 for every full share redeemed.

 

Payment for the shares of Preferred Stock submitted for redemption were made upon receipt of the share certificates representing the Preferred Stock and a Letter of Transmittal, completed and executed as set forth therein, beginning August 15, 2007. Other than the right to receive these cash payments, all rights and preferences as to the redeemed shares, including accrual of dividends, ceased on and after August 15, 2007.

  

ITEM 6.     EXHIBITS

 

Exhibit  
Number Description of Exhibit
   
31.1 Principal Executive Officer and Principal Financial Officer—Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
32.1 Principal Executive Officer and Principal Financial Officer—Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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SIGNATURES

 

Pursuant to the requirements 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. 

 

OLD STONE CORPORATION

 

 Date: March 2, 2012

 

  /s/ John E. Bucci, Jr.
 
  John E. Bucci, Jr.
   
  President and Treasurer

  

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