-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N8oZh8SjT30b9Ia9s0YQ1xAsofImVww/hugOlwgLZOFv7EkjJpa7pQmzhZpvNcyq 5Zef7fpuHV6t7sbhwN/lUA== 0000020639-00-000004.txt : 20000327 0000020639-00-000004.hdr.sgml : 20000327 ACCESSION NUMBER: 0000020639-00-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMBASE CORP CENTRAL INDEX KEY: 0000020639 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 952962743 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07265 FILM NUMBER: 577715 BUSINESS ADDRESS: STREET 1: GREENWICH OFFICE PARK BLDG 2 STREET 2: 51 WEAVER STREET CITY: GREENWICH STATE: CT ZIP: 06831-5155 BUSINESS PHONE: 2035322000 MAIL ADDRESS: STREET 1: GREENWICH OFFICE PARK, BLDG 2 STREET 2: 51 WEAVER STREET CITY: GREENWICH STATE: CT ZIP: 06831-5155 FORMER COMPANY: FORMER CONFORMED NAME: HOME GROUP INC DATE OF NAME CHANGE: 19890608 FORMER COMPANY: FORMER CONFORMED NAME: CITYHOME CORP DATE OF NAME CHANGE: 19780917 10-K 1 YEAR END 12/31/99 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, 1999 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ To ________ Commission file number 1-7265 AMBASE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-2962743 (State of incorporation) (I.R.S. EmployerIdentification No.) 51 Weaver Street, Building 2, Greenwich, CT 06831-5155 (Address of principal executive offices) Registrant's telephone number, including area code (203) 532-2000 Securities registered pursuant to Section 12(b)of the Act: Title of each class Name of each exchange on which registered Common Stock ($0.01 par value) None Rights to Purchase Common Stock None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. X At January 31, 2000, there were 46,208,519 shares of registrant's Common Stock outstanding. At January 31, 2000 the aggregate market value of registrant's voting securities (consisting of its Common Stock) held by nonaffiliates of the registrant, based on the average bid and asking price on such date of the Common Stock of $0.93 per share, was approximately $34 million. The Common Stock constitutes registrant's only outstanding security. Portions of the registrant's definitive Proxy Statement for its 2000 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 34. AmBase Corporation Annual Report on Form 10-K December 31, 1999
CROSS REFERENCE SHEET FOR PARTS I, II, III and IV Page - ---------------------------------------------- ------ PART I Item 1. Business..........................................................................................1 Item 2. Properties........................................................................................2 Item 3. Legal Proceedings.................................................................................2 Item 4. Submission of Matters to a Vote of Security Holders...............................................3 Executive Officers of the Registrant..............................................................3 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............................4 Item 6. Selected Financial Data...........................................................................4 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............5 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................9 Item 8. Financial Statements and Supplementary Data......................................................10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............33 PART III Item 10. Directors and Executive Officers of the Registrant...............................................33 Item 11. Executive Compensation...........................................................................33 Item 12. Security Ownership of Certain Beneficial Owners and Management...................................33 Item 13. Certain Relationships and Related Transactions...................................................33 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................34
PART I ITEM 1. BUSINESS Corporate Profile AmBase Corporation (the "Company") was incorporated as a Delaware corporation in 1975 by the City Investing Company ("City") as the holding company for The Home Insurance Company, a New Hampshire insurance corporation, and its affiliated property and casualty insurance companies ("The Home"). In 1985, City, which prior to that date owned all the outstanding shares of the Common Stock of the Company, distributed the Company's shares to City's common stockholders. The Home was sold on February 13, 1991 to Home Holdings, Inc. ("Home Holdings"). In December 1997, the Company formed a new wholly-owned subsidiary, SDG Financial Corp. ("SDG Financial"), to pursue merchant banking activities. SDG Financial purchased an approximate 6.3% equity interest in SDG, Inc. for $1,250,000 and was granted the exclusive right to act as the investment banker/financial advisor to SDG, Inc. and all of its subsidiaries and affiliates. SDG, Inc. is a development stage company which specializes in creating new technology-specific companies that are dedicated to the clinical and commercial development of proprietary, targeted liposomal delivery systems for pharmaceutical therapies and consumer product ingredients. SDG, Inc.'s lipid vesicles are protected by numerous U.S. and related foreign patents. The Company has also purchased $350,000 of convertible preferred and common stock in AMDG, Inc. ("AMDG"), a majority owned subsidiary of SDG, Inc. AMDG is a development stage pharmaceutical company focused on the clinical development of new therapies for the treatment of both Type I and Type II diabetes and has received from SDG, Inc. a worldwide, exclusive, royalty-free license to certain patented technology. AMDG raised $3.7 million of equity through a private placement in December 1997. In November 1993, the Company acquired 51% of the issued and outstanding common stock of Augustine Asset Management, Inc. ("Augustine"), a Florida based investment advisory firm. On October 4, 1996, the Company sold its entire interest in Augustine, to Augustine. In August 1988, the Company acquired Carteret Bancorp Inc. Carteret Bancorp Inc., through its principal wholly owned subsidiary, Carteret Savings Bank, FA ("Carteret"), was principally engaged in retail and consumer banking, and mortgage banking including mortgage servicing. On December 4, 1992, the Office of Thrift Supervision ("OTS") placed Carteret in receivership under the management of the Resolution Trust Corporation ("RTC") and a new institution, Carteret Federal Savings Bank, was established to assume the assets and certain liabilities of Carteret. Following the seizure of Carteret, the Company was deregistered as a savings and loan holding company by the OTS, although the OTS retains jurisdiction for any regulatory violations prior to deregistration. The Company's assets currently consist primarily of cash and cash equivalents and investment securities. The Company had 7 employees at December 31, 1999. 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 tax and litigation liabilities, as described in Item 8 - Notes 9 and 11 to the Company's consolidated financial statements. The Company intends to aggressively contest all pending and threatened litigation and contingencies, as well as pursue all sources for contributions to settlements. In order to continue on a long-term basis, the Company must both resolve its contingent and alleged liabilities by prevailing upon or settling these claims for less than the amounts claimed and generate profits by acquiring existing operations and/or by developing new operations. See Item 8 - Note 11 to the Company's consolidated financial statements for a discussion of Supervisory Goodwill Litigation. At December 31, 1999, the Company's liabilities, including reserves for contingent and alleged liabilities, exceeded total recorded assets by $29,424,000. The Company has significant alleged tax liabilities and is a defendant in a number of lawsuits and governmental proceedings, the ultimate outcome of which could have a material adverse effect on its financial condition and results of operations. Because of the nature of the contingent and alleged liabilities and the inherent difficulty in predicting the outcome of the litigation and governmental proceedings, management is unable to predict whether the Company's recorded reserves will be adequate or its resources sufficient to satisfy its ultimate obligations. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. For a discussion of the alleged tax liabilities, lawsuits and proceedings, see Item 8 - Notes 9 and 11 to the Company's consolidated financial statements. Although the basis for the calculation of the litigation and contingency reserves and income tax 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. ITEM 2. PROPERTIES The Company leases approximately 4,800 square feet for use as its executive office at 51 Weaver Street, Building 2, Greenwich, CT 06831-5155. ITEM 3. LEGAL PROCEEDINGS The Company has significant alleged tax liabilities and is a defendant in a number of lawsuits and governmental proceedings, the ultimate outcome of which could have a material adverse effect on its financial condition and results of operations. Because of the nature of the contingent and alleged liabilities and the inherent difficulty in predicting the outcome of the litigation and governmental proceedings, management is unable to predict whether the Company's recorded reserves will be adequate or its resources sufficient to satisfy its ultimate obligations. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. Although the basis for the calculation of the litigation and contingency reserves and income tax 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, 1999, the litigation and contingency reserves were $1,983,000. For a discussion of alleged tax liabilities, lawsuits and proceedings, see Item 8 - Notes 9 and 11 to the Company's consolidated financial statements. In addition to the litigation and contingency reserves, the Company had a reserve for income taxes of $66,388,000 at December 31, 1999. For a further discussion, see Item 8 - Note 9, Income Taxes and Note 11, Legal Proceedings, Dispute with Internal Revenue Service, Withholding Taxes (Netherlands Antilles) to the Company's consolidated financial statements. See Item 8 - Note 11 to the Company's consolidated financial statements for a discussion of Supervisory Goodwill Litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. Executive Officers of the Registrant Each executive officer is elected to serve in the executive officer capacity set forth opposite his respective name until the next Annual Meeting of Stockholders. The Company is not aware of any family relationships between any of the executive officers or directors of the Company. Set forth below is a list of executive officers of the Company at December 31, 1999:
Name Age Present Title ==== === ========== Richard A. Bianco 52 Chairman, President and Chief Executive Officer of AmBase Corporation John P. Ferrara 38 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.
1999 1998 ===================== ===================== High Low High Low ==== === ==== === First Quarter....................... $ 2.77 $ 2.18 $ 4.06 $ 3.50 Second Quarter...................... 2.49 1.08 4.06 2.80 Third Quarter....................... 1.25 0.83 3.40 2.16 Fourth Quarter...................... 1.12 0.80 2.86 1.65
As of January 31, 2000, there were approximately 19,500 beneficial owners of the Company's Common Stock. No dividends were declared or paid on the Company's Common Stock in 1999 or 1998. The Company does not intend to declare or pay dividends in the foreseeable future. For information concerning the Company's stockholder rights plan, see Item 8 - Note 5 to the Company's consolidated financial statements. ITEM 6. SELECTED FINANCIAL DATA The selected financial data should be read in conjunction with the Company's consolidated financial statements included in Item 8 of this Form 10-K. The consolidated statements of operations, for the periods ended prior to the October 4, 1996 sale of Augustine Asset Management, Inc. were retroactively reclassified to reflect their operations as discontinued operations.
Years ended December 31 ========================================================== (in thousands, except per share data) 1999 1998 1997 1996 1995 ==== ==== ==== ==== ==== Interest income, net........................ $ 2,166 $ 2,430 $ 2,661 $ 2,641 $ 2,835 Income (loss) from continuing operations, before income taxes...................... (4,280) 423 (1,275) 6,636 6,005 Income tax (expense) benefit................ (235) (242) 191 7,189 (1,997) Income (loss) from continuing operations ... (4,515) 181 (1,084) 13,825 4,008 Income from discontinued investment management operations, net of income taxes - - - 207 60 Net income (loss)........................... $ (4,515) $ 181 $ (1,084) $14,032 $ 4,068 Earnings per common share - basic Income (loss) from continuing operations.... $ (0.10) $ - $ (0.02) $ 0.31 $ 0.09 Income (loss) from discontinued operations.. - - - - - ----------- ----------- ----------- ----------- ----------- Net income (loss)........................... $ (0.10) $ - $ (0.02) $ 0.31 $ 0.09 ======= ======= ====== ====== ====== Earnings per common share - assuming dilution Income (loss) from continuing operations.... $ (0.10) $ - $ (0.02) $ 0.30 $ 0.09 Income (loss) from discontinued operations.. - - - - - ----------- ----------- ----------- ----------- ----------- Net income (loss)........................... $ (0.10) $ - $ (0.02) $ 0.30 $ 0.09 ====== ====== ====== ====== ====== Dividends................................... - - - - - ====== ====== ====== ====== ====== Total assets................................ $ 47,678 $ 51,638 $ 64,270 $66,229 $ 65,677 Total stockholders' equity.................. (29,424) (25,000) (25,181) (24,097) (38,273) ====== ====== ====== ====== ======
2 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and related notes which are contained in Item 8, herein. CONTINUING OPERATIONS Financial Condition The Company's assets at December 31, 1999 aggregated $47,678,000, consisting principally of cash and cash equivalents of $2,646,000 and investment securities of $43,260,000. At December 31, 1999, the Company's liabilities, including reserves for contingent and alleged liabilities, as further described in Item 8 - - Notes 9 and 11 to the Company's consolidated financial statements, exceeded total recorded assets by $29,424,000. In June 1998, the Company paid $12,700,000 to the IRS for tax and estimated interest to be applied to the Company's Fresh Start tax liability which related to a 1987 tax dispute with the IRS. This amount was previously reserved for as part of the Company's income tax reserves account. See Part II - Item 8 - Note 9 for a more complete discussion regarding the Company's payment to the IRS in connection with the Fresh Start tax proceeding and utilization of net operating loss carryforwards. Pursuant to the Home Holdings Revised Third Amended and Restated Plan of Reorganization (the "Revised Plan"), on July 30, 1998 the Company received $15,200,000 in full satisfaction of all the Company's claims relating to Home Holdings other than certain disputed claims. See Part II - Item 8 - Note 11 for further information regarding the collection by the Company of its receivable from Home Holdings and the Company's continuing rights to pursue certain disputed claims against Home Holdings pursuant to the Home Holdings bankruptcy case proceedings. The cash needs of the Company in 1999 were principally satisfied by interest income received on investment securities and cash equivalents, and the Company's current financial resources. Management believes that the Company's cash resources are sufficient to continue operations for 2000. Because of the nature of the contingent and alleged liabilities described in Item 8 - Notes 9 and 11 to the Company's consolidated financial statements, the Company is unable to predict whether it will have the ability to generate sufficient resources to satisfy its ultimate obligations. For the year ended December 31, 1999, cash of $6,120,000 was used by operating activities, including the payment of expenses, payment of other liabilities and payments charged against litigation and contingency reserves, partially offset by the receipt of interest income. The cash needs of the Company in 1998 were principally satisfied by interest income received on investment securities and cash equivalents, the Company's current financial resources and the $15,200,000 received pursuant to the Home Holdings Revised Plan. For the year ended December 31, 1998, cash of $14,892,000 was used by operating activities, including the payment of $12,700,000 to the Internal Revenue Service ("IRS") for the Company's Fresh Start tax liability, the payment of operating expenses and payments charged against the litigation and contingency reserve partially offset by interest income, and the receipt of amounts received pursuant to the Home Holdings Revised Plan. The cash needs of the Company for 1997 were principally satisfied by interest income received on investment securities and cash equivalents, a $475,000 income tax refund and the Company's cash resources. For the year ended December 31, 1997, cash of $4,486,000 was used by operating activities, including the payment of operating expenses, and payments charged against litigation and contingency reserves partially offset by the receipt of interest income, and a $475,000 income tax refund. There were no material commitments for capital expenditures as of December 31, 1999. 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 tax and litigation liabilities described in Item 8 - Notes 9 and 11 to the Company's consolidated financial statements. Extensive discussions and negotiations are ongoing with respect to certain of these matters. The Company intends to aggressively contest all pending and threatened litigation and contingencies, as well as pursue all sources for contributions to settlements. In order to continue on a long-term basis, the Company must both resolve its contingent and alleged liabilities by prevailing upon or settling these claims for less than the amounts claimed, and generate profits by acquiring existing operations and/or by developing new operations. See Item 8 - Note 11 to the Company's consolidated financial statements for a discussion of Supervisory Goodwill Litigation. Management of the Company continually reviews the likelihood of liability and associated costs of pending and threatened litigation. At December 31, 1999, the litigation and contingency reserves were $1,983,000. For a discussion of alleged tax liabilities and lawsuits, see Item 8 - Notes 9 and 11 to the Company's consolidated financial statements. In addition to the litigation and contingency reserves, the Company had a reserve for income taxes of $66,388,000 at December 31, 1999. For a further discussion, see Item 8 - Note 9, Income Taxes and Note 11, Legal Proceedings, Dispute with Internal Revenue Service, Withholding Taxes (Netherlands Antilles) to the Company's consolidated financial statements. As noted above, the Company has significant alleged tax liabilities and is a defendant in a number of lawsuits and governmental proceedings, the ultimate outcome of which could have a material adverse effect on its financial condition and results of operations. Because of the nature of the contingent and alleged liabilities and the inherent difficulty in predicting the outcome of litigation and governmental proceedings, management is unable to predict whether the Company's recorded reserves will be adequate or its resources sufficient to satisfy its ultimate obligations. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. For a discussion of the alleged tax liabilities, lawsuits and proceedings, see Item 8 - Notes 9 and 11 to the Company's consolidated financial statements. Although the basis for the calculation of the litigation and contingency reserves and income tax 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. The Company contractually assumed the tax liabilities of City, which, prior to September 1985, owned all the outstanding shares of Common Stock of the Company. For all periods through 1992, the IRS and the Company do not agree with respect to only one issue, withholding taxes in connection with a Netherlands Antilles finance subsidiary of City. With respect to the withholding taxes in connection with a Netherlands Antilles finance subsidiary of City, on May 11, 1995 the IRS issued a Notice of Deficiency for withholding taxes on interest payments for the years 1979 through 1985. In the Notice of Deficiency, the IRS contends that City's wholly owned Netherlands Antilles finance subsidiary should be disregarded for tax purposes. The Company vigorously contested the IRS's position in accordance with the IRS's internal appeals procedures. In January 1992, the National Office of the IRS issued technical advice supporting the auditing agent's position. In October 1992, the Company appealed this technical advice to the National Office. The National Office advised the Company that it expected to issue technical advice supporting the auditing agent's position, whereupon, the Company advised the IRS that it was withdrawing its technical advice request. On June 30, 1995, the Company filed a petition in the United States Tax Court ("Tax Court") contesting the Notice of Deficiency. The IRS filed its answer on August 23, 1995. The Company filed a motion for summary judgment in its favor on February 13, 1996. On April 17, 1996, the IRS filed a Notice of Objection to the Company's motion for summary judgment. The Tax Court requested, and the Company filed, on July 3, 1996, a reply to the IRS's Notice of Objection. On September 19, 1996, the Tax Court denied the Company's motion for summary judgment without prejudice. Based on the Tax Court's examination of the record and the status of the discovery process, the Court concluded that summary adjudication at this time was inappropriate. The Tax Court directed the parties to engage in full and complete discovery as expeditiously as possible. A trial was held in this case on March 24, 1997, after which the Judge asked the IRS and the Company to submit post-trial briefs, which were submitted to the Tax Court in August 1997. If the IRS were to prevail on this issue, the Company would be liable for taxes and interest in excess of the Company's financial resources. In a case dealing with a similar withholding tax issue, the Tax Court ruled in favor of the taxpayer, Northern Indiana Public Service Co. ("Northern Indiana") in November 1995. The Tax Court rejected the IRS's contention that interest paid to Northern Indiana's foreign subsidiary was subject to United States tax withholding. The IRS appealed this decision (Northern Indiana Public Service Co. v. Commissioner, 105 T.C. No. 22) to the United States Court of Appeals for the 7th Circuit ("Appeals Court"). In June of 1997, the Appeals Court affirmed the Tax Court's ruling in favor of Northern Indiana. Although the Appeals Court decision in the Northern Indiana case could be beneficial to the Company's case, it is not necessarily indicative of the ultimate result of the final settlement of the Netherlands Antilles issue between the Company and the IRS. Based on an evaluation of the IRS's contention, counsel has advised the Company that, although the outcome in litigation can by no means be assured, the Company has a very strong case and should prevail. Notwithstanding counsel's opinion and the Tax Court's ruling in the Northern Indiana case, it is not possible at this time to determine the final disposition of this issue, when the issues will be resolved, or their final financial effect. A final disposition of this issue in the Company's favor would have a material, positive effect on the Company's Statement of Operations and Financial Condition. See Item 8 - Note 9, Income Taxes, and Note 11, Legal Proceedings, Dispute with Internal Revenue Service, Withholding Taxes (Netherlands Antilles) to the Company's consolidated financial statements, for additional details. Results of Operations Summarized financial information for the operations of the Company for the years ended December 31 is as follows:
(in thousands) 1999 1998 1997 ==== ==== ==== Operating expenses: Compensation and benefits..................................... $ 3,605 $ 3,117 $ 3,116 Professional and outside services............................. 2,707 1,128 512 Insurance..................................................... 69 82 120 Occupancy..................................................... 100 86 87 Other operating............................................... 159 142 160 -------- -------- -------- 6,640 4,555 3,995 -------- -------- -------- Operating loss................................................ (6,640) (4,555) (3,995) -------- -------- -------- Interest income............................................... 2,166 2,430 2,661 Other income.................................................. 194 2,548 59 -------- -------- -------- Income (loss) before income taxes............................. (4,280) 423 (1,275) Income tax (expense) benefit.................................. (235) (242) 191 -------- -------- -------- Net income (loss)............................................. $ (4,515) $ 181 $ (1,084) ===== ===== =====
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 2000 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 a net loss of $4,515,000 for the year ended December 31, 1999. As further detailed below the 1999 net loss reflects an increase of $1,579,000 of professional and outside service fees as a result of Supervisory Goodwill litigation expenses. For the year ended December 31, 1998 the Company recorded net income of $181,000. As further described in Financial Condition, above, 1998 includes $2,548,000 of non-recurring other income, principally attributable to the receipt of $2,500,000 in connection with the Home Holdings Revised Plan as further described in Part II - Item 8 - Note 11. Excluding the non-recurring other income, the Company would have recorded a loss from continuing operations of $2,367,000 for the year ended December 31, 1998. The Company recorded a net loss of $1,084,000 for the year ended December 31, 1997. As further described below, the 1997 period includes a $475,000 income tax benefit. In addition, the 1997 period includes other income of $59,000 attributable to the collection by an inactive subsidiary of a receivable previously considered uncollectible. Excluding these non-recurring income items, the net loss would have been $1,618,000, or $0.04 per share, for the year ended December 31, 1997. Compensation and benefits was $3,605,000 in 1999, $3,117,000 in 1998 and $3,116,000 in 1997. The increase of $488,000 in 1999, compared with 1998 and 1997 is primarily due to increased incentive compensation and supplemental retirement plan accruals. Professional and outside services increased to $2,707,000 in 1999, compared to $1,128,000 in 1998 and $512,000 in 1997. The increase in 1999, compared to 1998, was due to an increase in Supervisory Goodwill litigation expenses as a result of litigation discovery expenses and the preparation of the Company's Summary Judgment Motion as further discussed in Part II - Item 8 - Note 11, offset to some effect by a reduction of legal fees attributable to the Home Holdings, Inc. bankruptcy case, which were incurred in 1998. The increase in 1998, compared to 1997, of $616,000 was principally the result of legal fees incurred attributable to the Home Holdings bankruptcy case incurred during 1998. Expenses for professional and outside services in 1999, 1998 and 1997 do not include costs associated with defending pending and threatened litigation which were previously reserved for and charged against the litigation and contingency reserves when paid. Insurance expenses decreased in 1999, 1998 and 1997, due to management's renegotiation of insurance programs. Occupancy expenses increased to $100,000 in 1999, from $86,000 in 1998, and $87,000 in 1997. The increases in 1999 compared to prior years is the result of an increase in occupancy related maintenance expenses. Interest income was $2,166,000 in 1999, $2,430,000 in 1998, and $2,661,000 in 1997. The decrease in 1999 compared to 1998, is the result of a decreased yield on cash equivalents and investment securities and a lower average level of investment securities. The decrease in 1998 compared to the 1997 period, was attributable to a decreased yield on cash equivalents and investment securities. Other income of $194,000 in 1999 and $59,000 in 1997 is primarily attributable to the collection by an inactive subsidiary of a receivable previously considered uncollectible. Other income in 1998 of $2,548,000 is principally attributable to the receipt of $2,500,000 received in connection with the Home Holdings Revised Plan. The 1999 and 1998 income tax provisions of $235,000 and $242,000, respectively, are principally attributable to state and local taxes. During 1997, the Company received a $475,000 income tax refund. This amount was recognized as an income tax benefit in 1997. In addition, included in income tax benefit is a state and local tax provision of $284,000 in 1997. A reconciliation between income taxes computed at the statutory federal rate and the provision for income taxes is included in Item 8 - Note 9 to the Company's consolidated financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company holds short-term investments as a source of liquidity. The Company's interest rate sensitive investments at December 31, 1999 and 1998 with maturity dates of less than one year consist of the following:
1999 1998 ========================== ====================== Carrying Fair Carrying Fair Value Value Value Value ----------- ----------- ----------- --------- (in thousands) U.S. Treasury Bills..................................... $ 43,260 $43,259 $ 47,156 $ 47,160 ======= ======= ======= ======= Weighted average interest rate........................... 4.81% 4.55% ======== =======
The Company's current policy is to minimize the interest rate risk of its short-term investments by investing in U.S. Treasury Bills with maturities of less than one year. There were no significant changes in market exposures or the manner in which interest rate risk is managed during the year. STOCKHOLDER INQUIRIES Stockholder inquiries, including requests for the following: (i) change of address; (ii) replacement of lost stock certificates; (iii) Common Stock name registration changes; (iv) Quarterly Reports on Form 10-Q; (v) Annual Reports on Form 10-K; (vi) proxy material; and (vii) information regarding stockholdings, should be directed to: American Stock Transfer and Trust Company 40 Wall Street, 46th Floor New York, NY 10005 Attention: Shareholder Services (800) 937-5449 or (718) 921-8200 In addition, the Company's public reports, including Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Proxy Statements, can be obtained through the Securities and Exchange Commission EDGAR Database over the World Wide Web at www.sec.gov. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of AmBase Corporation In our opinion, the accompanying consolidated Balance Sheets and the related consolidated Statements of Operations, of Changes in Stockholders' Equity, and of Cash Flows present fairly, in all material respects, the financial position of AmBase Corporation and its subsidiaries (the "Company") at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. 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, 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 the opinion expressed above. As discussed in Notes 9 and 11, the accompanying financial statements include income tax reserves relating to a significant issue. Final resolution of this issue is dependent upon future events, which may result in amounts more or less than those presented. The ultimate outcome of this issue cannot presently be determined. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, substantial operations of the Company have been discontinued, and substantial contingencies exist against the Company in various lawsuits and proceedings, which are discussed in Notes 9 and 11 to the financial statements and the second paragraph of this report. The Company has a net capital deficiency of approximately $29,424,000 at December 31, 1999. These factors raise substantial doubt about the Company's ability to continue as a going concern. It will be necessary for the Company to resolve the contingent liabilities by prevailing upon or settling these claims at amounts less than the claims and the amounts recorded and to generate, through acquisition or start up, profitable operations to continue on a long-term basis. See Note 1 for further discussion of management's plans. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. PricewaterhouseCoopers LLP New York, New York March 10, 2000 AMBASE CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations Years Ended December 31
(in thousands, except per share data) 1999 1998 1997 ==== ==== ==== Operating expenses: Compensation and benefits..................................... $ 3,605 $ 3,117 $ 3,116 Professional and outside services............................. 2,707 1,128 512 Insurance..................................................... 69 82 120 Occupancy..................................................... 100 86 87 Other operating............................................... 159 142 160 -------- -------- -------- 6,640 4,555 3,995 -------- -------- -------- Operating loss................................................ (6,640) (4,555) (3,995) -------- -------- -------- Interest income............................................... 2,166 2,430 2,661 Other income.................................................. 194 2,548 59 -------- -------- -------- Income (loss) before income taxes............................. (4,280) 423 (1,275) Income tax (expense) benefit.................................. (235) (242) 191 -------- -------- -------- Net income (loss)............................................. $ (4,515) $ 181 $ (1,084) ===== ===== ===== Earnings per common share: Net income (loss) - basic..................................... $ ( 0.10) $ - $ ( 0.02) Net income (loss) - assuming dilution......................... ( 0.10) - ( 0.02) ===== ===== ===== Dividends..................................................... $ - $ - $ - ===== ===== ===== Average shares outstanding.................................... 44,724 44,534 44,534 ===== ===== =====
The accompanying notes are an integral part of these consolidated financial statements. AMBASE CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets December 31
(in thousands) 1999 1998 ==== ==== Assets: Cash and cash equivalents....................................................... $ 2,646 $ 2,886 Investment securities - held to maturity (market value $43,259 and $47,160, respectively)............................ 43,260 47,156 Investment in SDG, Inc. at cost................................................. 1,250 1,250 Other assets.................................................................... 522 346 -------- -------- Total assets.................................................................... $ 47,678 $ 51,638 ===== ===== Liabilities and Stockholders' Equity Liabilities: Accounts payable and accrued liabilities........................................ $ 1,902 $ 1,642 Supplemental retirement plan.................................................... 5,545 5,079 Postretirement welfare benefits................................................. 1,178 1,301 Other liabilities............................................................... 106 152 Litigation and contingency reserves............................................. 1,983 2,076 Income tax reserves............................................................. 66,388 66,388 -------- -------- Total liabilities............................................................... 77,102 76,638 -------- -------- Commitments and contingencies................................................... - - -------- -------- Stockholders' equity: Common stock.................................................................... 455 447 Paid-in capital................................................................. 547,795 547,712 Accumulated deficit............................................................. (577,027) (572,512) Treasury stock.................................................................. (647) (647) -------- -------- Total stockholders' equity...................................................... (29,424) (25,000) -------- -------- Total liabilities and stockholders' equity...................................... $ 47,678 $ 51,638 ===== =====
The accompanying notes are an integral part of these consolidated financial statements. AMBASE CORPORATION AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Years Ended December 31
Common Paid-In Accumulated Treasury (in thousands) Stock Capital Deficit Stock Total ======= ===== ========= ====== ==== December 31, 1996......... $ 447 $ 547,712 $ (571,609) $ (647) $ (24,097) Net loss..................... - - (1,084) - (1,084) --------- ---------- ------------ ---------- --------- December 31, 1997......... 447 547,712 (572,693) (647) (25,181) Net income................. - - 181 - 181 --------- ---------- ------------ ---------- --------- December 31, 1998......... 447 547,712 (572,512) (647) (25,000) Stock options exercised 8 83 - - 91 Net loss................... - - (4,515) - (4,515) --------- ---------- ----------- ---------- --------- December 31, 1999......... $ 455 $ 547,795 $ (577,027) $ (647) $ (29,424) ====== ====== ======= ====== ======
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) 1999 1998 1997 ==== ==== ==== Cash flows from operating activities: Net income (loss) ..................................................................... $ (4,515) $ 181 $ (1,084) Adjustments to reconcile net income (loss) to net cash used by operating activities: Other assets .......................................................................... 48 86 (128) Accounts payable and accrued liabilities .............................................. 260 92 122 Litigation and contingency reserves uses .............................................. (93) (264) (614) Income tax reserves ................................................................... -- (12,700) -- Accretion of discount - investment securities ......................................... (2,133) (2,350) (2,419) Other, net ............................................................................ 313 63 (363) --------- --------- --------- Net cash used by operating activities ................................................. (6,120) (14,892) (4,486) --------- --------- --------- Cash flows from investing activities: Maturities of investment securities - held to maturity ................................ 108,986 78,451 77,880 Purchases of investment securities - held to maturity ................................. (102,957) (78,947) (72,512) Purchases of investment securities - available for sale ............................... (250) -- (100) Investment in SDG, Inc. ............................................................... -- -- (1,250) Proceeds from Home Holdings, Inc. receivable .......................................... -- 12,708 450 Other, net ............................................................................ 10 18 (25) --------- --------- --------- Net cash provided by investing activities ............................................. 5,789 12,230 4,443 --------- --------- --------- Cash flows from financing activities: Issuance of common stock .............................................................. 91 -- -- --------- --------- --------- Net cash provided by financing activities ............................................. 91 -- -- --------- --------- --------- Net decrease in cash and cash equivalents ............................................. (240) (2,662) (43) Cash and cash equivalents at beginning of year ........................................ 2,886 5,548 5,591 --------- --------- --------- Cash and cash equivalents at end of year .............................................. $ 2,646 $ 2,886 $ 5,548 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Note 1 - Organization AmBase Corporation (the "Company") is a holding company which, through a wholly owned subsidiary, owns a 6.3% ownership interest in SDG, Inc. The Company previously held a majority ownership interest in Augustine Asset Management, Inc. ("Augustine"), an investment advisor, and also previously owned a savings bank and an insurance company, all of which have been designated as discontinued operations, as further discussed below. On December 4, 1992, Carteret Savings Bank, FA ("Carteret") was placed in receivership by the Office of Thrift Supervision ("OTS"). On February 13, 1991, the Company sold its ownership interest in The Home Insurance Company ("The Home") and its subsidiaries to Home Holdings, Inc. ("Home Holdings"). The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Substantial contingent and alleged liabilities exist against the Company through various lawsuits and proceedings, as described in Notes 9 and 11. These factors raise substantial doubt about the Company's ability to continue as a going concern. In order to continue on a long-term basis, the Company must both resolve its contingent and alleged liabilities by prevailing upon or settling these claims for less than the amounts claimed, and generate profits by acquiring existing operations and/or by developing new operations. The financial statements do not include adjustments to the carrying value of assets and liabilities which might be necessary should the Company not continue in operation. The Company continues to evaluate a number of possible acquisitions, and is engaged in the management of its remaining assets and liabilities, including the contingent and alleged tax and litigation liabilities, as described in Notes 9 and 11. The Company intends to aggressively contest all pending and threatened litigation and governmental proceedings, as well as pursue all sources for contributions to settlements. The Company's main source of non-operating revenue is interest earned on investment securities and cash equivalents. The Company's management expects that operating cash needs in 2000 will be met principally by the Company's current financial resources and the receipt of non-operating revenue consisting of interest income earned on investment securities and cash equivalents. Because of the nature of the contingent and alleged liabilities and the inherent difficulty in predicting the outcome of litigation and governmental proceedings, management is unable to predict whether the Company's recorded reserves will be adequate or its resources sufficient to satisfy its ultimate obligations. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. For a discussion of the alleged tax liabilities, lawsuits and governmental proceedings, see Notes 9 and 11. Although the basis for the calculation of the litigation and contingency reserves and income tax 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. See Note 11 for a discussion of Supervisory Goodwill Litigation. Note 2 - Summary of Significant Accounting Policies The consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP"). Certain reclassifications have been made to the 1998 and 1997 consolidated financial statements to conform with the 1999 presentation. Use of estimates in the preparation of financial statements: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions, that it deems reasonable, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates and assumptions. AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Principles of consolidation: The consolidated financial statements are comprised of the accounts of the Company and its majority owned subsidiaries. All material intercompany transactions and balances have been eliminated. Investments in companies in which ownership interest is less than 20% are accounted for using the cost method. Cash and cash equivalents: Highly liquid investments, consisting principally of funds held in short-term money market accounts, are classified as cash equivalents. Investment securities: Securities that the Company has both the positive intent and ability to hold to maturity are classified as investment securities - held to maturity and are carried at amortized cost. Investment securities - available for sale, which are those securities that may be sold prior to maturity, are carried at fair value, with any net unrealized gains or losses reported in a separate component of stockholders' equity, net of deferred taxes. Interest and dividends on investment securities are recognized in the Statement of Operations when earned. Realized gains and losses on the sale of investment securities - available for sale are calculated using the first-in/first-out basis for determining the cost basis of the securities. The fair value of publicly traded investment securities is determined by reference to current market quotations. Income taxes: The Company and its domestic subsidiaries file a consolidated federal income tax return. The Company recognizes both the current and deferred tax consequences of all transactions that have been recognized in the financial statements, calculated based on the provisions of enacted tax laws, including the tax rates in effect for current and future years. Net deferred tax assets are recognized immediately when a more likely than not criterion is met; that is, unless a greater than 50% probability exists that the tax benefits will actually be realized sometime in the future. At the present time, management has no basis to conclude that realization is more likely than not. Earnings per share: Basic and fully diluted earnings per share ("EPS") are computed by dividing net income (loss) by the weighted average number of common and common equivalent shares outstanding. Stock-based compensation: The Company adopted the disclosure requirements of Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("Statement 123") and continues to account for stock compensation using APB Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25"), making proforma disclosures of net income and earnings per share as if the fair value based method had been applied. For a further discussion, see Note 8. Note 3 - Investment Securities Investment securities - held to maturity consist of U.S. Treasury Bills with original maturities of one year or less and which 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:
1999 1998 ========================================= ========================================= Cost or Cost or Carrying Amortized Fair Carrying Amortized Fair (in thousands) Value Cost Value Value Cost Value ====== ======== ===== ====== ======== ===== Held to Maturity: U.S. Treasury Bills $ 43,260 $ 43,260 $ 43,259 $ 47,156 $ 47,156 $ 47,160 ===== ===== ===== ===== ===== =====
The gross unrealized gains and losses on investment securities at December 31, consist of the following:
(in thousands) 1999 1998 ==== ==== Held to Maturity - Gross unrealized gains (losses).................................. $ ( 1) $ 4 ==== ====
Other investment securities at December 31, 1999 and 1998 consist of convertible preferred stock and/or common stock in AMDG, Inc., which were purchased through private placements, are classified as other assets, and are carried at cost which approximates market value; $350,000 at December 31, 1999 and $100,000 and December 31, 1998. 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:
1999 ===================================================== Loss Shares Per Share (in thousands) (Numerator) (Denominator) Amount ========= ============ ========= Basic earnings per share: Net loss............................................... $ (4,515) 44,724 $ ( 0.10) ===== ===== Effect of Dilutive Securities: Assumed stock option exercise.......................... - ---------- Diluted earnings per share: Net loss and assumed conversions....................... $ (4,515) 44724 $ ( 0.10) ===== ===== =====
1998 ==================================================== Income Shares Per Share (in thousands) (Numerator) (Denominator) Amount ======== ========== ====== Basic earnings per share: Net income............................................. $ 181 44,534 $ - ===== ===== Effect of Dilutive Securities: Assumed stock option exercise.......................... 1,697 ---------- Diluted earnings per share: Net income and assumed conversions..................... $ 181 46,231 $ - ===== ===== =====
1997 ==================================================== Loss Shares Per Share (in thousands) (Numerator) (Denominator) Amount ======== ============= ====== Net loss............................................... $ (1,084) 44,534 $ (0.02) ===== ===== Effect of Dilutive Securities: Assumed stock option exercise.......................... - ---------- Diluted earnings per share: Net loss and assumed conversions....................... $ (1,084) 44,534 $ (0.02) ===== ===== =====
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:
1999 1998 1997 ====== ====== ====== Balance at beginning of year ............................ 44,533,519 44,533,519 44,533,519 Issuance of common shares ............................... 815,000 -- -- ---------- ---------- ---------- Balance at end of year .................................. 45,348,519 44,533,519 44,533,519 ========== ========== ==========
Common Stock balances exclude 126,488 treasury shares at December 31, 1999, 1998 and 1997, carried at an average cost of $5.12 per share aggregating approximately $647,000. The Company issued 815,000 of previously authorized common shares during October 1999, in connection with the exercise of employee stock options. At December 31, 1999, there were 6,045,000 common shares reserved for issuance under the Company's stock option and other employee benefit plans. During January 2000, the Company issued 860,000 of previously authorized common shares in connection with the exercise of employee stock options. 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, 2001. 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) 1999 1998 1997 ==== ==== ==== Service cost of current period................................ $ 470 $ 337 $ 306 Interest cost on projected benefit obligation................. 400 337 335 Amortization of unrecognized losses........................... 56 - - -------- -------- -------- $ 926 $ 674 $ 641 ===== ===== =====
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) 1999 1998 ==== ==== Projected benefit obligation at beginning of year............................... $ 6,153 $ 5,045 Service cost.................................................................... 470 337 Interest cost................................................................... 400 337 Actuarial (gain) loss, including effect of change in assumptions................ (739) 894 Benefits paid................................................................... (460) (460) -------- -------- Projected benefit obligation at end of year..................................... $ 5,824 $ 6,153 ===== =====
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) 1999 1998 ==== ==== Actuarial present value of benefit obligations: Accumulated benefit obligations, fully vested................................... $ 4,941 $ 5,019 ===== ===== Projected benefit obligation for service rendered to date....................... $ 5,824 $ 6,153 Unrecognized net loss........................................................... (279) (1,074) -------- -------- Accrued pension costs........................................................... $ 5,545 $ 5,079 ===== ===== Major assumptions: Pre-retirement and postretirement discount rate................................. 7.75% 6.75% Rate of increase in future compensation......................................... 6.0% 6.0% ===== =====
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 $25,000, $26,000 and $18,000 in 1999, 1998 and 1997, respectively. All contributions are subject to maximum limitations contained in the Code. Note 7 - Postretirement Benefits Other Than Pensions Pursuant to a 1985 agreement, the Company has assumed the obligation to provide a portion of retiree medical and life insurance coverage to individuals who retired from City Investing Company ("City"), which, prior to September 1985, owned all the outstanding shares of Common Stock of the Company. The Company and its subsidiaries do not provide postretirement benefits to employees currently retiring. Retiree insurance coverage is provided to participants through group medical and life insurance contracts. Retiree medical coverage provides supplemental Medicare coverage for retirees and their eligible spouses. Life insurance is provided to retirees at 25% of the participant's pre-retirement amount, not to exceed $50,000. All participants are required to contribute a portion, which may be adjusted, of the cost of their postretirement benefit coverage. The Company does not pre-fund these plans and retains the right to modify or terminate these plans in the future. Net periodic postretirement benefit (income) expense for the years ended December 31 was as follows:
(in thousands) 1999 1998 1997 ==== ==== ==== Interest cost on accumulated postretirement benefit obligation....... $ 14 $ 22 $ 23 Amortization of prior service liability.............................. (75) (66) (66) Amortization of unrecognized gain.................................... (43) (41) (45) -------- -------- -------- Net periodic postretirement benefit (income) expense................. $ (104) $ (85) $ (88) ===== ===== =====
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) 1999 1998 ==== ==== Accumulated postretirement benefit obligation at beginning of year... $ 219 $ 323 Interest cost........................................................ 14 22 Amendments........................................................... (68) (87) Actuarial gains, including effect of assumption changes.............. (27) (13) Plan participant contributions....................................... 58 52 Benefit premiums paid................................................ (77) (78) -------- -------- Accumulated postretirement benefit obligation at end of year......... $ 119 $ 219 ===== =====
The accrued postretirement benefit liability at December 31 is summarized below:
(in thousands) 1999 1998 ==== ==== Accumulated postretirement benefit obligation: Retirees........................................................................ $ 119 $ 219 -------- -------- Unrecognized net gains.......................................................... 434 450 Unrecognized prior service liability............................................ 625 632 -------- -------- Accrued postretirement benefit liability........................................ $ 1,178 $ 1,301 ===== =====
The accumulated benefit obligation for 1999, 1998 and 1997 was determined using the projected unit credit method and a discount rate of 7.75%, 6.75% and 7.0%, respectively. The health care cost trend rates were assumed to be 7% in 1999, 8% in 1998, and 9% in 1997, gradually declining to 5.5% in 2001 and remaining at that level, thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported. At December 31, 1999 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................................ $ 1 $ (1) Effect on accumulated postretirement benefit obligation............................. 6 (5) ===== =====
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"), beginning with the fiscal year ending on December 31, 1994. 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. 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 1999, the Board of Directors of the Company approved the award of incentive stock options to certain employees to acquire 90,000 shares of AmBase Common Stock at exercise prices between $2.56 and $2.82 per share, pursuant to the 1993 Plan. 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, 1999, 935,000 shares are reserved for issuance under the 1985 Plan. The exercise price of incentive stock options could not be less than 100% of the fair market value of the Company's Common Stock on the date of grant, with a maximum life of ten years, and may not be exercised to purchase stock until vesting requirements have been met. As discussed in Note 5, stock options previously awarded under the 1985 Plan, for 815,000 common shares and 860,000 common shares were exercised in October 1999 and January 2000, respectively. Incentive plan activity is summarized as follows:
1993 Stock 1985 Stock (shares in thousands) Incentive Plan Option Plan ======================== ============================== Weighted Weighted Shares Average Shares Average Under Exercise Under Exercise Option Price Option Price ===== ======= ===== ======= Outstanding at December 31, 1996.................. 100 $ 2.09 1,763 $ 0.15 Granted............................................ 5 2.84 - - Cancelled.......................................... - - (13) 0.21 -------- -------- -------- -------- Outstanding at December 31, 1997...................... 105 2.13 1,750 0.15 Granted............................................ 85 3.85 - - -------- -------- -------- -------- Outstanding at December 31, 1998................... 190 2.90 1,750 0.15 Granted............................................ 90 2.69 - - Exercised.......................................... - - (815) 0.11 -------- -------- -------- -------- Outstanding at December 31, 1999.................... 280 $ 2.83 935 $ 0.18 ===== ===== ===== ===== Options exercisable at: December 31, 1997............................. 50 $ 2.09 1,750 $ 0.15 December 31, 1998............................. 103 2.11 1,750 0.15 December 31, 1999............................. 148 2.62 935 0.18 ===== ===== ===== =====
1993 Stock 1985 Stock Incentive Plan Option Plan =========== ========= Weighted average fair value of options granted during: 1997..................................................... $ 1.81 $ - 1998..................................................... 1.89 - 1999..................................................... 1.25 - ====== ======
The following table summarizes information about the Company's stock options outstanding and exercisable under the 1985 Plan and 1993 Plan at December 31, 1999, 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 ====== ===== ======== ======= ===== ======= $0.11 350 3 years $ 0.11 350 $ 0.11 $0.20 to 0.23 585 1 years 0.23 585 0.23 $2.09 100 7 years 2.09 100 2.09 $2.56 to 3.65 135 7 years 2.98 25 3.49 $ 4.02 45 3 years 4.02 23 4.02 -------- ===== ===== -------- ======= Total 1,215 1,083 ===== =====
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 1999, 1998 and 1997. The fair value of stock options granted by the Company in 1999, 1998 and 1997 used to compute proforma net income and earnings per share disclosures is the estimated fair value at date of grant, using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1999, 1998 and 1997, respectively: dividend yield 0% for all years, expected historical volatility of 0.46, 0.53 and 0.84, risk-free interest rates of 6.07%, 4.65% and 5.84%, and weighted average expected life of the options of 4 to 6 years. If the Company had elected to recognize compensation cost for stock options based on the fair value at date of grant for stock options under the 1993 Plan and the 1985 Plan, consistent with the method prescribed by Statement 123, net income (loss) and net income (loss) per share would have been changed to the proforma amounts indicated below. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, and given the substantial changes in the price per share of the Company's Common Stock during 1999, 1998 and 1997, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of proforma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's proforma information for the years ended December 31 follows:
(in thousands, except per share data) 1999 1998 1997 ==== ==== ==== Net income (loss) As reported..................................................... $ (4,515) $ 181 $ (1,084) Proforma........................................................ (4,651) 61 (1,171) ===== ===== ===== Per share data As reported..................................................... $ (0.10) $ - $ (0.02) Proforma........................................................ (0.10) - (0.02) ===== ===== =====
AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Note 9 - Income Taxes The components of income tax (expense) benefit for the years ended December 31 are as follows:
(in thousands) 1999 1998 1997 ==== ==== ==== Income tax (expense) benefit $ (235) $ (242) $ 191 ===== ===== =====
The components of pretax income (loss) and the difference between income taxes computed at the statutory federal rate of 35% in 1999, 1998 and 1997, and the provision for income taxes for the years ended December 31 follows:
(in thousands) 1999 1998 1997 ==== ==== ==== Net income (loss) before income taxes........................... $ (4,515) $ 423 $ (1,275) ===== ===== ===== Tax (expense) benefit: Tax at statutory federal rate................................... $ 1,580 $ (148) $ 446 Prior year tax refund........................................... - - 475 Accounting loss benefit not recognized.......................... (1,580) - (446) Accounting loss benefit recognized.............................. - 148 - State income taxes.............................................. (235) (242) (284) -------- -------- -------- $ (235) $ (242) $ 191 ===== ===== =====
The composition of income tax (expense) benefit for the year ended December 31 is as follows: (in thousands) 1999 1998 1997 ==== ==== ==== Current: Federal......................................................... $ - $ - $ - State........................................................... (235) (242) (284) -------- -------- -------- (235) (242) (284) -------- -------- -------- Deferred (primarily federal): Prior year tax refund........................................... - - 475 -------- -------- -------- - - 475 -------- -------- -------- $ (235) $ (242) $ 191 ===== ===== =====
The Company contractually assumed the tax liabilities of City, which, prior to September 1985, owned all the outstanding shares of Common Stock of the Company. For all periods through 1992, the Internal Revenue Service ("IRS") and the Company disagree only with respect to withholding taxes in connection with a Netherlands Antilles finance subsidiary of City. See Note 11, Legal Proceedings, Disputes with Internal Revenue Service over Withholding Taxes (Netherlands Antilles), for additional details. In June 1998, the Company paid $12,700,000 to the IRS for tax and estimated interest to be applied to the Company's Fresh Start tax liability, which related to a 1987 tax dispute with the IRS. Based on a proposed Final Stipulation between the Company and the IRS on the Fresh Start issue, the Company is presently awaiting the IRS's final calculation of interest on the Fresh Start issue. In connection with the proposed Final Stipulation, the Company anticipates utilizing approximately $29 million of NOL's. A summary of the Company's NOL carryforwards remaining after the utilization of the $29 million NOL's applied to Fresh Start is provided below. During the first quarter of 1997, $475,000 of income taxes were refunded as the result of an overpayment to the IRS for 1988 through 1991 tax years. This amount was recorded as an income tax benefit in the first quarter of 1997. The Company's federal income tax returns for years subsequent to 1992 have not been reviewed by the IRS. As a result of the OTS's December 4, 1992 placement of Carteret in receivership, under the management of the Resolution Trust Corporation ("RTC")/Federal Deposit Insurance Corporation ("FDIC"), and proposed Treasury Reg. ss.1.597-4(g), the Company had previously filed its 1992 and subsequent federal income tax returns with Carteret disaffiliated from the Company's consolidated federal income tax return. Based upon the impact of Treasury Reg. ss.1.597-4(g), which was issued in final form on December 20, 1995, a continuing review of the Company's tax basis in Carteret, and the impact of prior year tax return adjustments on the Company's 1992 federal income tax return as filed, the Company decided not to make an election pursuant to final Treasury Reg. ss.1.597-4(g) to disaffiliate Carteret from the Company's consolidated federal income tax return effective as of December 4, 1992 (the "election decision"). The Company has made numerous requests to the RTC/FDIC for tax information pertaining to Carteret and the resulting successor institution, Carteret Federal Savings Bank ("Carteret FSB"); however all of the information still has not been received. Based on the Company not making the election decision, as described above, and the receipt of some of the requested information from the RTC/FDIC, the Company has amended its 1992 consolidated federal income tax return to include the federal income tax effects of Carteret and Carteret FSB. The Company is still in the process of amending its consolidated federal income tax returns for 1993 and subsequent years. The Company anticipates that, as a result of filing a consolidated federal income tax return with Carteret FSB, a total of approximately $170 million of tax NOL carryforwards will be generated from the Company's tax basis in Carteret/Carteret FSB as tax losses are incurred by Carteret FSB of which $158 million are still available for future use. Based on the Company's recent filing of its amended 1992 consolidated federal income tax return to include the federal income tax effects of Carteret FSB, approximately $56 million of NOL carryforwards are generated for tax year 1992 which expire in 2007, with the remaining approximate $102 million of NOLs carryforwards to be generated, expiring no earlier than 2008. These NOL carryforwards would be available to offset future taxable income, in addition to the NOL carryforwards as further detailed below. Based upon the Company's federal income tax returns as filed from 1993 to 1998 (subject to IRS audit adjustments), after utilizing $29 million of NOL carryforwards in connection with Fresh Start; and excluding the NOL carryforwards generated from the Company's tax basis in Carteret/Carteret FSB, as noted above, at December 31, 1999 the Company has NOL carryforwards available to reduce future federal taxable income, which expire if unused, as follows:
2008 $ 1,000,000 2009 7,000,000 2010 5,500,000 2012 1,000,000 2018 5,500,000 ------------ $20,000,000 ============
The utilization of certain carryforwards is subject to limitations under U.S. federal income tax laws. In addition, the Company has approximately $21 million of alternative minimum tax credit carryforwards, which are not subject to expiration. Under Statement 109, the Company has calculated a net deferred tax asset of $28 million and $25 million as of December 31, 1999 and 1998, respectively, arising primarily from NOL's, alternative minimum tax credits and the excess of book over tax reserves (not including the anticipated tax effects of the NOL's expected to be generated from the Company's tax basis in Carteret, resulting from the election decision, as more fully described above). A valuation allowance has been established for the entire net deferred tax asset, as management, at the current time, has no basis to conclude that realization is more likely than not. Note 10 - Commitments and Contingencies Future minimum rental payments, principally for office space, under noncancellable operating leases at December 31, 1999, are: 2000, $80,000; 2001, $20,000. Rent expense charged to earnings was $67,000, $66,000 and $67,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Note 11 - Legal Proceedings (a) The Company is or has been a defendant in a number of lawsuits or proceedings, including the following: Marshall Manley v. AmBase Corporation. On November 14, 1996, Marshall Manley ("Manley"), a former President, Chief Executive Officer and Director of the Company, commenced an action against the Company, seeking indemnification from the Company pursuant to a May 27, 1993 employment settlement agreement between Manley and the Company. Manley seeks reimbursement of certain alleged payments he made to the Trustee in the bankruptcy proceedings of the law firm of Finley, Kumble, Wagner, Heine, Underberg, Manley & Casey (the "Manley action"), arguing that he served at such firm at the request of the Company. The Manley action is pending in the United States District Court for the Southern District of New York. The Company filed its answer on January 21, 1997, raising substantial affirmative defenses which the Company intends to vigorously pursue. On October 30, 1997, AmBase amended its Answer and Counterclaims to include a claim of fraud against Manley. In December 1997, Manley moved for summary judgment. The Company raised substantial opposition to the motion and moved to strike certain of Manley's affirmative defenses which Manley raised in connection with the Company's fraud claim against Manley. Oral argument on Manley's Motion for Summary Judgment and the Company's motion to strike Manley's affirmative defenses was held on May 15, 1998. The court denied both motions. The case has been set for trial in May of 2000. Dispute with Internal Revenue Service over Withholding Taxes (Netherlands Antilles). The Company contractually assumed the tax liabilities of City, which, prior to September 1985, owned all the outstanding shares of Common Stock of the Company. For all periods through 1992, the IRS and the Company disagree only with respect to withholding taxes in connection with a Netherlands Antilles finance subsidiary of City. On May 11, 1995, the IRS issued a Notice of Deficiency for withholding taxes on interest payments for the years 1979 through 1985. In the Notice of Deficiency, the IRS contends that City's wholly owned Netherlands Antilles finance subsidiary should be disregarded for tax purposes. The Company vigorously contested the IRS's position in accordance with the IRS's internal appeals procedures. In January 1992, the National Office of the IRS issued technical advice supporting the auditing agent's position. In October 1992, the Company appealed this technical advice to the National Office. The National Office advised the Company that it expected to issue technical advice supporting the auditing agent's position, whereupon, the Company advised the IRS that it was withdrawing its technical advice request. On June 30, 1995, the Company filed a petition in the United States Tax Court contesting the Notice of Deficiency. The IRS filed its answer on August 23, 1995. The Company filed a motion for summary judgment in its favor on February 13, 1996. On April 17, 1996, the IRS filed a Notice of Objection to the Company's motion for summary judgment. The Tax Court requested, and the Company filed on July 3, 1996, a reply to the IRS's Notice of Objection. On September 19, 1996, the Tax Court denied the Company's motion for summary judgment without prejudice. Based on the Tax Court's examination of the record and the status of the discovery process, the Tax Court concluded that summary adjudication at this time was inappropriate. The Tax Court directed the parties to engage in full and complete discovery as expeditiously as possible. A trial was held in this case on March 24, 1997, after which the Judge asked the IRS and the Company to submit post-trial briefs, which were submitted to the Tax Court in August 1997. If the IRS were to prevail on this issue, the Company would be liable for taxes and interest in excess of the Company's financial resources. In a case dealing with a similar withholding tax issue, the Tax Court ruled in favor of the taxpayer, Northern Indiana Public Service Co. ("Northern Indiana") in November 1995. The Tax Court rejected the IRS's contention that interest paid to Northern Indiana's foreign subsidiary was subject to United States tax withholding. The IRS has appealed this decision (Northern Indiana Public Service Co. v. Commissioner, 105 T.C. No. 22) to the United States Court of Appeals for the 7th Circuit ("Appeals Court"). In June of 1997, the Appeals Court affirmed the Tax Court's ruling in favor of Northern Indiana. Although the Appeals Court decision in the Northern Indiana case could be beneficial to the Company's case, it is not necessarily indicative of the ultimate result of the final settlement of the Netherlands Antilles issue between the Company and the IRS. Based on an evaluation of the IRS's contention, counsel has advised the Company that, although the outcome in litigation can by no means be assured, the Company has a very strong case and should prevail. Notwithstanding counsel's opinion and the Tax Court's ruling in the Northern Indiana case, it is not possible at this time to determine the final disposition of this issue, when the issues will be resolved, or their final financial effect. A final disposition of this issue in the Company's favor would have a material, positive effect on the Company's Statement of Operations and Financial Condition. The actions against the Company are in various stages. Nevertheless, the allegations and claims are material and, if successful, could result in substantial judgments against the Company. To the extent the aggregate of any such judgments were to exceed the resources available, these matters would have a material adverse effect on the Company's financial condition and results of operations. Due to the nature of these proceedings, the Company and its counsel are unable to express any opinion as to their probable outcome. (b) Supervisory Goodwill Litigation: During the third quarter of 1993, the Company filed a claim against the United States, in the United States Court of Federal Claims (the "Court of Federal Claims"), based upon the impact of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") on the Company's investment in Carteret Savings Bank ("Carteret"). Approximately 120 other similar so-called "supervisory goodwill" cases, commenced in recent years by other financial institutions and/or their shareholders, are pending in the Court of Federal Claims. Three of these cases, Winstar Corp. v. United States, Glendale Federal Bank, FSB v. United States, and Statesman Savings Holding Corp. v. United States (the "consolidated cases"), which involve many of the same issues raised in the Company's suit, were appealed to the United States Supreme Court (the "Supreme Court"). On July 1, 1996, the Supreme Court issued a decision in the consolidated cases. The Supreme Court's decision affirmed the lower Court's grant of summary judgment in favor of the plaintiffs on the issue of liability and remanded the cases for a determination of damages. Although the decision in the consolidated cases is beneficial to the Company's case, it is not necessarily indicative of the ultimate outcome of the Company's action. On September 18, 1996, the Court of Federal Claims entered an Omnibus Case Management Order that will govern further proceedings in the Company's action and most of the other so-called "Winstar-related" cases. On March 14, 1997, the Court entered an order permitting the Federal Deposit Insurance Company ("FDIC") to intervene as an additional plaintiff in forty-three cases, including the Company's case, but not allowing the FDIC to be substituted as the sole plaintiff in those cases. On April 9, 1999 and April 16,1999, respectively, the Court issued decisions addressing damage claims in two of the Winstar-related cases, Glendale Federal Bank, FSB v. United States, and California Federal Bank v. United States. In the Glendale case, the Court awarded Glendale $908.9 million in restitution and non-overlapping reliance damages, representing the benefit conferred on the government as a result of the contract at issue in that case, plus certain non-overlapping damages suffered by Glendale as a result of the government's breach of contract. The Court declined to award expectation damages as requested by Glendale. In the California Federal case, the Court awarded California Federal $23.4 million in damages, representing expenses incurred by California Federal in raising new capital to replace the supervisory goodwill lost as a result of the government's breach of contract. The Court declined to award expectation damages, restitution, or other reliance damages as requested by California Federal. The trial court and anticipated 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. The briefing on the Summary Judgment Motion is now complete, and the parties are awaiting the scheduling of oral argument on the motion by the Court. 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. A trial date has not yet been set in the Company's case. No assurance can be given regarding the ultimate outcome of the litigation. (c) Claims Against Zurich SF Holdings, Inc. AmBase Corporation v. Zurich SF Holdings, Inc. (f/k/a Reorganized Home Holdings, Inc.)I. In 1991, the Company sold its entire interest in The Home Insurance Company ("Home Insurance") and its subsidiaries to Home Holdings, Inc. ("Home Holdings") pursuant to an agreement dated as of September 28, 1990 (as amended the "Stock Purchase Agreement"). As part of the sale proceeds, Home Holdings agreed to pay certain amounts to the Company over a period of years to meet certain specified obligations of the Company, as incurred, relating to tax issues, litigation and administrative expenses. On January 15, 1998, Home Holdings filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code ("Chapter 11"), which was subsequently amended, culminating in the Revised Third Amended and Restated Plan of Reorganization (the "Revised Plan"). The Revised Plan was confirmed by order of the Bankruptcy Court dated June 9, 1998, and was declared effective on July 29, 1998. Pursuant to the Revised Plan, on July 30, 1998, the Company received $15,200,000 in full satisfaction of all of the Company's claims relating to Home Holdings other than certain disputed claims relating to Section 7.4(c)(iii) of the Stock Purchase Agreement (the "Disputed Claims"). The Company's rights against Home Holdings with regard to the Disputed Claims were preserved and survived the effective date of the Revised Plan. The Revised Plan further provided credit support for any amounts due the Company on account of the Disputed Claims in the form of a Keepwell Agreement provided by Zurich Reinsurance Centre Holdings ("Zurich Reinsurance"). In April 1999, the Company filed a complaint in the Supreme Court of New York for the Disputed Claims. In June 1999, Zurich SF Holdings, Inc. ("Zurich") (f/k/a Reorganized Home Holdings, Inc.) filed a motion to dismiss the complaint filed by the Company. The Company filed a response to the motion to dismiss in July 1999. On October 20, 1999, Zurich's motion to dismiss the Company's complaint in its entirety was denied. However, under the relevant statute of limitations, such portion of the Company's claims which accrued more than six years prior to the filing of the complaint were deemed dismissed. A trial date in this action has been scheduled for May 22, 2000. AmBase Corporation v. Zurich SF Holdings Inc. (f/k/a Home Holdings Inc.) II. In December 1999, the Company commenced a separate proceeding against Zurich, seeking to enjoin a proposed, multi-step, corporate restructuring in which Zurich ultimately would be merged with and into a new entity. Under two interlocking agreements - a Keepwell Agreement and an Assignment and Security Agreement (the "Agreements") - Zurich's parent, Zurich Reinsurance is obligated to provide credit support to Zurich to enable it to satisfy the Disputed Claims which are the subject of the already pending litigation against Zurich, referenced above. The Company's concern is that Zurich Reinsurance's obligations to Zurich might be compromised as a result of the corporate restructuring. Accordingly, the Company moved for a preliminary injunction enjoining the mergers from going forward. Although this motion remains under submission with the court, Zurich nonetheless proceeded with the merger transactions just prior to year's end. However, Zurich Reinsurance has provided written assurances that the Agreements remain in full force and effect and that it shall honor its credit support obligations. 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 1999 and 1998 cost for these privately placed shares. The carrying value of applicable other liabilities approximates their fair value. Note 13 - Supplemental Disclosure of Cash Flow Information Additional information regarding cash flow for the years ended December 31 is as follows:
(in thousands) 1999 1998 1997 ==== ==== ==== Cash received (paid) during the period: Income tax refunded (paid), net........................... $ (233) $ (12,940) $ 244 ====== ====== ======
Income taxes refunded (paid), net in 1998 include $12,700,000 for tax and estimated interest paid to the IRS in full satisfaction of the Company's Fresh Start tax liability. In 1997, income taxes refunded include $475,000 of taxes refunded as a result of an overpayment to the IRS for 1988 through 1991 tax years. For the years ended December 31, 1999, 1998, 1997 no cash interest was paid. Note 14 - Quarterly Financial Information (unaudited) Summarized quarterly financial information follows:
First Second Third Fourth Full (in thousands, except per share data) Quarter Quarter Quarter Quarter Year ===== ===== ===== ===== ===== 1999: Operating expenses...................... $ 1,038 $ 2,245 $ 1,482 $ 1,875 $ 6,640 ---------- ---------- ---------- ---------- ---------- Operating loss.......................... (1,038) (2,245) (1,482) (1,875) (6,640) Interest income......................... 531 523 544 568 2,166 Other income............................ 43 61 50 40 194 ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes....... (464) (1,661) (888) (1,267) (4,280) Income tax (expense) benefit............ (55) (68) (46) (66) (235) ---------- ---------- ---------- ---------- ---------- Net income (loss)....................... (519) (1,729) (934) (1,333) (4,515) ===== ===== ===== ===== ===== Earnings per common share: Net income (loss) - basic............... $ (0.01) $ (0.04) $ (0.02) $ (0.03) $ (0.10) Net income - assuming dilution.......... (0.01) (0.04) (0.02) (0.03) (0.10) ===== ===== ===== ===== ===== 1998: Operating expenses...................... $ 871 $ 880 $ 676 $ 2,128 $ 4,555 ---------- ---------- ---------- ---------- ---------- Operating loss.......................... (871) (880) (676) (2,128) (4,555) Interest income......................... 632 593 595 610 2,430 Other income............................ - - 2,500 48 2,548 ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes....... (239) (287) 2,419 (1,470) 423 Income tax (expense) benefit............ (64) (64) (59) (55) (242) ---------- ---------- ---------- ---------- ---------- Net income (loss)....................... $ (303) $ (351) $ 2,360 $ (1,525) $ 181 ===== ===== ===== ===== ===== Earnings per common share: Net income (loss) - basic............... $ (0.01) $ (0.01) $ 0.05 $ (0.03) $ - Net income - assuming dilution.......... (0.01) (0.01) 0.05 (0.03) - ===== ===== ===== ===== =====
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 19, 2000, under the caption "Information Concerning the Board and its Committees", which is incorporated herein by reference, which the Company intends to file with the Securities and Exchange Commission not later than 120 days after the close of its fiscal year. ITEM 11. EXECUTIVE COMPENSATION For the information required to be set forth by the Company in response to this item, see the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held on May 19, 2000, 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 19, 2000, under the caption "Stock Ownership", which is incorporated herein by reference, which the Company intends to file with the Securities and Exchange Commission not later than 120 days after the close of its fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For the information required to be set forth by the Company in response to this item, see the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held on May 19, 2000, under the caption "Certain Relationships and Related Transactions", which is incorporated herein by reference, which the Company intends to file with the Securities and Exchange Commission not later than 120 days after the close of its fiscal year. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as a part of this report:
1. Index to Financial Statements: Page AmBase Corporation and Subsidiaries: Report of Independent Accountants.................................................................10 Consolidated Statements of Operations.............................................................11 Consolidated Balance Sheets.......................................................................12 Consolidated Statements of Changes in Stockholders' Equity........................................13 Consolidated Statements of Cash Flows.............................................................14 Notes to Consolidated Financial Statements........................................................15
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 and February 1, 1996) (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 and the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 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 dated as of 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), and 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). 10H. Stock Purchase Agreement among AmBase Corporation, The Home Insurance Company and TVH Acquisition Corporation, dated as of September 28, 1990 and amended as of December 12, 1990, as of December 21, 1990 and as of February 4, 1991 (incorporated by reference to Exhibit 10HH to the Company's Annual Report on Form 10-K for the year ended December 31, 1990). 10I. Indemnity Agreement dated as of February 13, 1991 among the Company, The Home Insurance Company and TVH Acquisition Corporation (incorporated by reference to Exhibit 10JJ to the Company's Annual Report on Form 10-K for the year ended December 31, 1990). 10J. Consulting Agreement dated as of February 13, 1991 between the Company and TVH Acquisition Corporation (incorporated by reference to Exhibit 10KK to the Company's Annual Report on Form 10-K for the year ended December 31, 1990). 21. Subsidiaries of the Registrant. 23. Consent of Independent Accountants. 27. Financial Data Schedule (only submitted to SEC in electronic format) Exhibits, except as otherwise indicated above, are filed herewith. (b) Form 8-K The Company was not required to file a Current Report on Form 8-K during the quarter ended December 31, 1999. 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 24th day of March 2000. AMBASE CORPORATION RICHARD A. BIANCO Chairman, President and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on the 24th day of March 2000. RICHARD A. BIANCO JOHN P. FERRARA Chairman, President and Vice President, Chief Financial Officer Chief Executive Officer and Controller (Principal Financial and Accounting Officer) JOHN B. COSTELLO ROBERT E. LONG Director Director MICHAEL L. QUINN Director DIRECTORS AND OFFICERS Board of Directors - ------------------ Richard A. Bianco John B. Costello Robert E. Long Chairman, President and Private Investor President and Chief Executive Officer Chief Executive Officer AmBase Corporation Business News Network, Inc. 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 2000 Annual Meeting is currently scheduled to be held at 9:00 a.m. AmBase Corporation Eastern Daylight Time, on Friday, May 19, 51 Weaver Street, Bldg. 2 2000, at: Greenwich, CT 06831-5155 (203) 532-2000 Greenwich Library, the Cole Auditorium 101 West Putnam Avenue Greenwich, CT 06830 Stockholder Inquiries ---------------------- Common Stock Trading Stockholder inquiries,including - -------------------- requests for the following: (i) AmBase stock is traded through one or more (i) change of address; (ii) re- market-makers with quotations made available placement of lost stock in the "pink sheets" published by the certificates; (iii) Common National Quotation Bureau, Inc. Stock name registration changes; (iv) Quarterly Reports on Form Issue Abbreviation Ticker Symbol 10-Q;(v) Annual Reports on Form 10-K; (vi) proxy material; and Common Stock AmBase ABCP (vii) information regarding stock holdings, should be directed to: Transfer Agent and Registrar - ---------------------------- American Stock Transfer and American Stock Transfer and Trust Trust Company Company 40 Wall Street - 46th Floor 40 Wall Street - 46th Floor New York, NY 10005 New York, NY 10005 Attention: Shareholder Services Attention: Shareholder Services Reports (800) 937-5449 or (718) 921-8200 (800) 937-5449 or (718) 921-8200 In addition, the Company's public reports, including Quar- Independent Accountants terly Report on Form 10-Q, Annual - ----------------------- Report on Form 10-K and Proxy PricewaterhouseCoopers LLP Statements, can be obtained 1177 Avenue of the Americas through the Securities and New York, NY 10036 Exchange Commission EDGAR Database over the World Wide Web at www.sec.gov. Number of Stockholders ---------------------- As of January 31, 2000, there were approximately 19,500 stockholders. EXHIBITS ATTACHED WITH THIS FORM 10-K
Exhibit No. Description - ----------- ----------- 21 Subsidiaries of the Registrant 23 Consent of Independent Accountants 27 Financial Data Schedule (only submitted to SEC in electronic format)
EX-21 2 AMBASE CORPORATION SUBSIDIARY LISTING EXHIBIT 21 AMBASE CORPORATION SUBSIDIARY LISTING AS OF DECEMBER 31, 1999
Jurisdiction Percentage Voting In Which Securities Owned By Name Organized Immediate Parent ==================================================== ============================== ================================ AmBase Corporation Delaware N/A Carteret Bancorp, Inc. Delaware 100% Home Capital Services, Inc. Delaware 100% Maiden Lane Associates, Ltd. Delaware 100% SDG Financial Corp. Delaware 100%
Note: Interrelationships shown by indentation with 100% ownership unless otherwise indicated. EX-23 3 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-22553, 33-27417, 33-32224 and 33-17829) of AmBase Corporation of our report dated March 10, 2000 relating to the financial statements, which appears on page 10 of the Annual Report to Stockholders, which is incorporated in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP New York, New York March 24, 2000 EX-27 4 FINANCIAL DATA SCHEDULE
5 0000020639 AmBase Corporation 1,000 12-MOS DEC-31-1999 JAN-1-1999 DEC-31-1999 2,646 43,260 0 0 0 0 0 0 47,678 0 0 0 0 455 (29,879) 47,678 0 0 0 0 (6,640) 0 0 (4,280) 235 (4,515) 0 0 0 (4,515) (0.10) (0.10)
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