-----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, L6YuhDUrc7a+7Bod65QL85cQHmEi44axSMF9RfdD5Zhb7YNGqYTWVC0U5KcnzgIo 0Oayh+LsUIIhs+9HAEdBSg== 0000020639-99-000005.txt : 19990323 0000020639-99-000005.hdr.sgml : 19990323 ACCESSION NUMBER: 0000020639-99-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990322 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: 99569951 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 FORM 10-K FOR YEAR ENDED 12/31/98 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, 1998 OR |_|TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ To ________ Commission file number 1-7265 AMBASE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-2962743 (State of incorporation) (I.R.S. Employer Identification No.) 51 Weaver Street, Building 2, Greenwich, CT 06831-5155 (Address of principal executive offices) Registrant's telephone number, including area code (203) 532-2000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock ($0.01 par value) None Rights to Purchase Common Stock None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. At January 29, 1999, there were 44,533,519 shares of registrant's Common Stock outstanding. At January 29, 1999 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 $2.64 per share, was approximately $93 million. The Common Stock constitutes registrant's only outstanding security. Portions of the registrant's definitive Proxy Statement for its 1999 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, 1998 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 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. Also in December 1997, the Company purchased $100,000 of convertible preferred 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. See Item 8 - Note 6 to the Company's consolidated financial statements for further information. 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, 1998. 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 11 and 13 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 13 to the Company's consolidated financial statements for a discussion of Supervisory Goodwill Litigation. -1- At December 31, 1998, the Company's liabilities, including reserves for contingent and alleged liabilities, exceeded total recorded assets by $25,000,000. 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 11 and 13 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. Discontinued Operations For a discussion of discontinued investment management operations, refer to Item 8 - Note 6 to the Company's consolidated financial statements. 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, 1998, the litigation and contingency reserves were $2,076,000. For a discussion of alleged tax liabilities, lawsuits and proceedings, see Item 8 - Notes 11 and 13 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, 1998. For a further discussion, see Item 8 - Note 11, Income Taxes and Note 13, Legal Proceedings, Dispute with Internal Revenue Service, Withholding Taxes (Netherlands Antilles) to the Company's consolidated financial statements. See Item 8 - Note 13 to the Company's consolidated financial statements for a discussion of Supervisory Goodwill Litigation. -2- 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, 1998: ================================================================================ Name Age Present Title ================================================================================ Richard A. Bianco 51 Chairman, President and Chief Executive Officer of AmBase Corporation John P. Ferrara 37 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. -3- 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. ================================================================================ 1998 1997 High Low High Low ================================================================================ First Quarter $4.06 $3.50 $2.92 $2.50 Second Quarter 4.06 2.80 2.96 2.49 Third Quarter 3.40 2.16 3.02 2.58 Fourth Quarter 2.86 1.65 3.96 2.90 ================================================================================ As of January 29, 1999, there were approximately 21,000 beneficial owners of the Company's Common Stock. No dividends were declared or paid on the Company's Common Stock in 1998 or 1997. 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 7 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 were retroactively reclassified to reflect their operations as discontinued operations. ================================================================================ Years ended December 31 (in thousands, except per share data) 1998 1997 1996 1995 1994 ================================================================================ Interest income, net $ 2,430 $ 2,661 $ 2,641 $ 2,835 $ 2,092 Income (loss) from continuing operations, before income taxes 423 (1,275) 6,636 6,005 6,246 Income tax (expense) benefit (242) 191 7,189 (1,997) (148) Income (loss) from continuing operations 181 (1,084) 13,825 4,008 6,098 Income from discontinued investment management operations, net of income taxes - - 207 60 32 Net income (loss) 181 (1,084) 14,032 4,068 6,130 Earnings per common share - basic Income (loss) from continuing operations $ - $ (0.02) $ 0.31 $ 0.09 $ 0.14 Income (loss) from discontinued operations - - - - - - -------------------------------------------------------------------------------- Net income (loss) $ - $ (0.02) $ 0.31 $ 0.09 $ 0.14 - -------------------------------------------------------------------------------- Earnings per common share - assuming dilution Income (loss) from continuing operations $ - $ (0.02) $ 0.30 $ 0.09 $ 0.14 Income (loss) from discontinued operations $ - - - - - - -------------------------------------------------------------------------------- Net income (loss) $ - $ (0.02) $ 0.30 $ 0.09 $ 0.14 ================================================================================ Dividends - - - - - ================================================================================ Total assets $ 51,638 $ 64,270 $66,229 $65,677 $70,113 Total stockholders' equity (25,000) (25,181) (24,097) (38,273) (42,204) ================================================================================ -4- 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. On October 4, 1996, the Company sold its entire interest in Augustine. Accordingly, the operations of Augustine have been reclassified as discontinued investment management operations in the accompanying consolidated financial statements. CONTINUING OPERATIONS Financial Condition The Company's assets at December 31, 1998 aggregated $51,638,000, consisting principally of cash and cash equivalents of $2,886,000 and investment securities of $47,156,000. At December 31, 1998, the Company's liabilities, including reserves for contingent and alleged liabilities, as further described in Item 8 - - Notes 11 and 13 to the Company's consolidated financial statements, exceeded total recorded assets by $25,000,000. In June 1998, the Company paid $12,700,000 to the IRS for tax and estimated interest in full satisfaction of the Company's Fresh Start tax liability. This amount was previously reserved for as part of the Company's income tax reserves account. See Part II - Item 8 - Note 11 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 4 for further information regarding the Company's 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 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. Management believes that the Company's cash resources are sufficient to continue operations for 1999. 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. The cash needs of the Company for 1996 were principally satisfied by the receipt of a 1977 tax refund, collections of the receivable from Home Holdings and interest income received on investment securities and cash equivalents. Management believes that the Company's cash resources are sufficient to continue operations for 1999. Because of the nature of the contingent and alleged liabilities described in Item 8 - Notes 11 and 13 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, 1998, cash of $14,892,000 was used by operating activities of continuing operations, 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. For the year ended December 31, 1997, cash of $4,486,000 was used by operating activities of continuing operations, 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. For the year ended December 31, 1996, cash of $1,622,000 was used by operating activities of continuing operations, including the payment of other liabilities, payments charged against income tax reserves and litigation and contingency reserves, and the payment of operating expenses, partially offset by the receipt of a 1977 tax refund, and the receipt of interest income. -5- There were no material commitments for capital expenditures as of December 31, 1998. 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 11 and 13 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 13 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, 1998, the litigation and contingency reserves were $2,076,000. For a discussion of alleged tax liabilities and lawsuits, see Item 8 - Notes 11 and 13 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, 1998. For a further discussion, see Item 8 - Note 11, Income Taxes and Note 13, Legal Proceedings, Dispute with Internal Revenue Service, Withholding Taxes (Netherlands Antilles) to the Company's consolidated financial statements. During 1996, the Company determined that there was a reduced probability of incurring costs to defend and/or settle potential litigation with respect to Carteret, see the Company's Annual Report on Form 10-K for the year ended December 31, 1995, Item 8 - Note 11. As a result, the Company reduced its litigation and contingency reserves by $8,000,000 and recorded such amount as other income during 1996. In making such determination, management took into consideration numerous factors, including the failure of the RTC to notify the Company of any potential legal action prior to the expiration of a significant statute of limitations deadline and the transfer of the investigative duties of the RTC to the FDIC upon the expiration of the RTC's charter on December 31, 1995 pursuant to federal statute. Management also considered the July 1, 1996 decision by the U.S. Supreme Court in the consolidated supervisory goodwill cases of Winstar, Glendale Federal and Statesman, which held the United States liable for damages. 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 11 and 13 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. During 1996, in connection with the completion by the IRS of the Company's 1985 to 1991 federal income tax audits (excluding Fresh Start), the Company made payments to the IRS totaling $1,995,000. These amounts were previously reserved for and charged against the income tax reserves account. During the first quarter of 1997, $475,000 of income taxes were refunded as a 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. -6- 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 have subsequently been submitted to the Tax Court. 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"). 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 11, Income Taxes, and Note 13, Legal Proceedings, Dispute with Internal Revenue Service, Withholding Taxes (Netherlands Antilles) to the Company's consolidated financial statements, for additional details. -7- Results of Operations - Continuing Operations Summarized financial information for the continuing operations of the Company for the years ended December 31 is as follows: ================================================================================ (in thousands) 1998 1997 1996 ================================================================================ Operating expenses: Compensation and benefits $ 3,117 $ 3,116 $ 2,969 Professional and outside services 1,128 512 457 Insurance 82 120 177 Occupancy 86 87 89 Other operating 142 160 161 - -------------------------------------------------------------------------------- 4,555 3,995 3,853 - -------------------------------------------------------------------------------- Operating loss (4,555) (3,995) (3,853) - -------------------------------------------------------------------------------- Interest income 2,430 2,661 2,641 Other income 2,548 59 30 Other income - litigation and contingency reserves reversal - - 8,000 Realized loss on sale of investment securities - available for sale - - (182) - -------------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes 423 (1,275) 6,636 - -------------------------------------------------------------------------------- Income tax (expense) benefit (242) 191 7,189 - -------------------------------------------------------------------------------- Income (loss) from continuing operations $ 181 $(1,084) $13,825 ================================================================================ 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 1999 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 income from continuing operations of $181,000 in the year ended December 31, 1998. 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 4. 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 loss from continuing operations of $1,084,000 in 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 loss from continuing operations would have been $1,618,000, or $0.04 per share, for the year ended December 31, 1997. The Company recorded income from continuing operations of $13,825,000 in the year ended December 31, 1996. As further described below, the 1996 period includes other income of $8,000,000, resulting from a reduction in the litigation and contingency reserves, and an additional income tax benefit of $7,613,000. Excluding these non-recurring items, the Company would have reported a loss from continuing operations of $1,788,000, or $0.04 per share, for the year ended December 31, 1996. Compensation and benefits was $3,117,000 in 1998, $3,116,000 in 1997 and $2,969,000 in 1996. The increase in 1997, compared with 1996, of $147,000 is principally due to increased benefit related costs. Professional and outside services increased to $1,128,000 in 1998, compared to 1997, and increased to $512,000 in 1997, from $457,000 in 1996. 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. The increase in 1997, compared to 1996, was due to an increase in litigation expenses. Expenses for professional and outside services in 1998, 1997, and 1996 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. -8- Insurance expenses decreased in 1998, 1997 and 1996, due to management's renegotiation of insurance programs. Occupancy expenses decreased to $86,000 in 1998, from $87,000 in 1997 and $89,000 in 1996. The decreases in 1998 and 1997 as compared to prior years is the result of the continued reduction of occupancy related expenses, and the relocation of the Company's executive office and the closing of an administrative office during 1996. Interest income was $2,430,000 in 1998, $2,661,000 in 1997 and $2,641,000 in 1996. The decrease in 1998, compared to the 1997 period, was attributable to a decreased yield on cash equivalents and investment securities. The increase in 1997, compared to 1996, was attributable to an increased yield on cash equivalents and investment securities. 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. Other income of $59,000 in 1997 is attributable to the collection by an inactive subsidiary of a receivable previously considered uncollectible. The Company realized a loss of $182,000 in 1996 on the sale of investment securities - available for sale. During 1996, the Company recorded as other income an $8,000,000 reduction in the litigation and contingency reserves, as more fully described in Financial Condition, above. The 1998 income tax provision of $242,000 is 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. During 1996, the Company received a 1977 income tax refund of $7,613,000. This amount was recognized as an income tax benefit in 1996, based on management's continuing review of the overall tax liability position of the Company. In addition, included in income tax benefit is a federal and state tax provision of $424,000 in 1996. A reconciliation between income taxes computed at the statutory federal rate and the provision for income taxes is included in Item 8 - Note 11 to the Company's consolidated financial statements. Discontinued Investment Management Operations See Item 8 - Note 6 to the Company's consolidated financial statements for information. Year 2000 Issue The Company has completed its review of year 2000 issues and has determined it will not have a material effect on the Company's business, results of operations or financial condition. 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. -9- 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards 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 11 and 13, 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 11 and 13 to the financial statements and the second paragraph of this report. The Company has a net capital deficiency of approximately $25,000,000 at December 31, 1998. 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, 1999 -10- AMBASE CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations Years Ended December 31 ================================================================================ (in thousands, except per share data) 1998 1997 1996 ================================================================================ Operating expenses: Compensation and benefits $ 3,117 $ 3,116 $ 2,969 Professional and outside services 1,128 512 457 Insurance 82 120 177 Occupancy 86 87 89 Other operating 142 160 161 - -------------------------------------------------------------------------------- 4,555 3,995 3,853 - -------------------------------------------------------------------------------- Operating loss (4,555) (3,995) (3,853) - -------------------------------------------------------------------------------- Interest income 2,430 2,661 2,641 Other income 2,548 59 30 Other income - litigation and contingency reserves reversal - - 8,000 Realized loss on sale of investment securities - available for sale - - (182) - -------------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes 423 (1,275) 6,636 Income tax (expense) benefit (242) 191 7,189 - -------------------------------------------------------------------------------- Income (loss) from continuing operations 181 (1,084) 13,825 Income from discontinued investment management operations, net of income taxes - - 207 - -------------------------------------------------------------------------------- Net income (loss) $ 181 $(1,084) $14,032 ================================================================================ Earnings per common share - basic Income (loss) from continuing operations $ - $ (0.02) $ 0.31 Income (loss) from discontinued operations - - - - -------------------------------------------------------------------------------- Net income (loss) $ - $ (0.02) $ 0.31 ================================================================================ Earnings per common share - assuming dilution Income (loss) from continuing operations $ - $ (0.02) $ 0.30 Income (loss) from discontinued operations - - - - -------------------------------------------------------------------------------- Net income (loss) $ - $ (0.02) $ 0.30 ================================================================================ Dividends $ - $ - $ - ================================================================================ Average shares outstanding 44,534 44,534 44,534 ================================================================================ The accompanying notes are an integral part of these consolidated financial statements. -11- AMBASE CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets December 31 ================================================================================ (in thousands) 1998 1997 ================================================================================ Assets: Cash and cash equivalents $ 2,886 $ 5,548 Investment securities - held to maturity (market value $47,160 and $44,276, respectively) 47,156 44,310 Receivable from Home Holdings, Inc. - 12,736 Investment in SDG, Inc. at cost 1,250 1,250 Other assets 346 426 - -------------------------------------------------------------------------------- Total assets $ 51,638 $ 64,270 ================================================================================ Liabilities and Stockholders' Equity Liabilities: Accounts payable and accrued liabilities $ 1,642 $ 1,550 Supplemental retirement plan 5,079 4,865 Postretirement welfare benefits 1,301 1,412 Other liabilities 152 196 Litigation and contingency reserves 2,076 2,340 Income tax reserves 66,388 79,088 - -------------------------------------------------------------------------------- Total liabilities 76,638 89,451 - -------------------------------------------------------------------------------- Commitments and contingencies - - - -------------------------------------------------------------------------------- Stockholders' equity: Common stock 447 447 Paid-in capital 547,712 547,712 Accumulated deficit (572,512) (572,693) Treasury stock (647) (647) - -------------------------------------------------------------------------------- Total stockholders' equity (25,000) (25,181) - -------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 51,638 $ 64,270 ================================================================================ The accompanying notes are an integral part of these consolidated financial statements. -12- AMBASE CORPORATION AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Years Ended December 31 ================================================================================ Accumulated Paid- Other Common In Comprehensive Accumulated Treasury (in thousands) Stock Capital Income (Loss) Deficit Stock Total ================================================================================ December 31, 1995 $447 $547,712 $(144) $(585,641) $(647) $(38,273) Comprehensive income: Net income - - - 14,032 - 14,032 Reclassification adjustment for losses realized in net income - - 144 - - 144 - -------------------------------------------------------------------------------- Comprehensive income - - - - - 14,176 - -------------------------------------------------------------------------------- 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) ================================================================================ The accompanying notes are an integral part of these consolidated financial statements. -13- AMBASE CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years Ended December 31 ================================================================================ (in thousands) 1998 1997 1996 ================================================================================ Cash flows from operating activities: Income (loss) from continuing operations $ 181 $(1,084) $13,825 Adjustments to reconcile income (loss) from continuing operations to net cash used by continuing operations: Other assets 86 (128) 286 Accounts payable and accrued liabilities 92 122 692 Litigation and contingency reserves uses (264) (614) (1,195) Litigation and contingency reserves - (reserve reversal) - - (8,000) Income tax reserves (12,700) - 5,619 Income tax refund - 1977 - - (7,613) Accretion of discount - investment securities (2,350) (2,419) (2,428) Realized loss on sale of investment securities - available for sale - - 182 Other, net 63 (363) (2,990) - -------------------------------------------------------------------------------- Net cash used by operating activities of continuing operations (14,892) (4,486) (1,622) - -------------------------------------------------------------------------------- Cash used by discontinued investment management operations - - (291) - -------------------------------------------------------------------------------- Cash flows from investing activities: Maturities of investment securities - held to maturity 78,451 77,880 71,235 Purchases of investment securities - held to maturity (78,947) (72,512) (76,011) Purchases of investment securities - available for sale - (100) - Investment in SDG, Inc. - (1,250) - Proceeds from sales of investment securities - available for sale - - 31 Proceeds from Home Holdings, Inc. receivable 12,708 450 3,997 Proceeds from sale of Augustine Asset Management, Inc. - - 500 Other, net 18 (25) - - -------------------------------------------------------------------------------- Net cash provided (used) by investing activities 12,230 4,443 (248) - -------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (2,662) (43) (2,161) Cash and cash equivalents at beginning of year 5,548 5,591 7,752 - -------------------------------------------------------------------------------- Cash and cash equivalents at end of year $2,886 $5,548 $ 5,591 ================================================================================ The accompanying notes are an integral part of these consolidated financial statements. -14- 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 October 4, 1996, the Company sold its entire interest in Augustine, to Augustine. See Note 6 for a further discussion. 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"). See Note 4 for a further discussion. 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 11 and 13. 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 11 and 13. 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 1999 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 11 and 13. 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 13 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 1997 and 1996 consolidated financial statements to conform with the 1998 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. -15- 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. Comprehensive Income: During 1998, the Company adopted Statement of Financial Account Standards No. 130, "Reporting Comprehensive Income" ("Statement 130"). Statement 130 establishes the concept of comprehensive income and provides standards for reporting comprehensive income. Comprehensive income has two major components; net income as reported in the Consolidated Statements of Operations, and other comprehensive income. The Company has changed the format of its Consolidated Statements of Changes in Stockholders' Equity to present comprehensive income. The adoption of Statement 130 had no impact on total stockholders' equity or net income. 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: The Company presents earnings per share ("EPS") in accordance with Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("Statement 128"). Statement 128 requires dual presentation of basic and diluted EPS. Furthermore, a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation is required. 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 10. -16- AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Note 3 - Investment Securities Investment securities - held to maturity consist of U.S. Treasury Bills with original maturities of one year or less and 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: ================================================================================ 1998 1997 ------------------------------ ------------------------------ 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 $47,156 $47,156 $47,160 $44,310 $44,310 $44,276 ================================================================================ The gross unrealized gains and losses on investment securities at December 31, consist of the following: ================================================================================ (in thousands) 1998 1997 ================================================================================ Held to Maturity - Gross unrealized gains (losses) $ 4 $ (34) ================================================================================ Other investment securities at December 31, 1998 and 1997 consist of $100,000 of convertible preferred stock in AMDG, Inc., that was purchased through a private placement in December 1997, is classified as other assets and is carried at cost which approximates market value. During 1996, investment securities - available for sale were sold, resulting in proceeds of $31,000 and a realized loss of $182,000. -17- AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Note 4 - Receivable From Home Holdings 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 between the Company, Home Insurance and Home Holdings (then known as TVH Acquisition Corporation) dated as of September 28, 1990 (as amended the "Stock Purchase Agreement"). As part of the sale proceeds, Home Holdings agreed to pay $48 million 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. The Company had collected the portion of this receivable with respect to litigation and administrative expenses. As of January 15, 1998, the Company believed that the remaining receivable, related principally to tax issues, was at least $12,728,000. On January 15, 1998, Home Holdings filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). Home Holdings scheduled the Company's outstanding receivable from Home Holdings as a contingent general unsecured claim in the amount of $11,703,136. The Company disagreed with Home Holdings' characterization of its receivable as contingent, and also with the amount of the outstanding receivable. The Company filed, in connection with the Home Holdings bankruptcy case, a proof of claim ("Proof of Claim") for all damages, which was significantly in excess of $12,728,000. On January 15, 1998, Home Holdings filed, along with its petition, a pre-arranged plan of reorganization under Chapter 11 (the "Plan"). According to Home Holdings' Plan and accompanying disclosure statement, general unsecured creditors of Home Holdings, including the Company, were to receive a projected future recovery of approximately 38.3% of the amounts owed to them. The Company filed with the United States Bankruptcy Court ("Bankruptcy Court") an objection to the Plan. Thereafter, Home Holdings filed a Second Amended Plan (the "Amended Plan"). According to the Amended Plan, Home Holdings purported to leave the Company's claim unimpaired, which means that the Company would retain its rights to seek the full amount of its outstanding receivable from Home Holdings after the Amended Plan was confirmed, and would not be limited to a recovery of approximately 38.3%. The Company disagreed with the characterization of its claim as unimpaired, and filed an objection to the Amended Plan. Home Holdings then filed a number of amended plans, culminating in the Revised Third Amended and Restated Plan of Reorganization (the "Revised Plan"), to which the Company agreed. 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 in respect of the Disputed Claims are preserved and survive the effective date of the Revised Plan, and the Company may pursue any such claims in federal or state court. The Revised Plan further provides 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. On the effective date of the Revised Plan, the Company withdrew its Proof of Claim and exchanged releases with Home Holdings and various other parties. -18- AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Note 5 - 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: ================================================================================ 1998 ---------------------------------------- Income Shares Per Share (in thousands) (Numerator) (Denominator) Amount ================================================================================ Basic earnings per share: Income from continuing operations $ 181 44,534 $ - ====== ====== Effect of Dilutive Securities: Assumed stock option exercise - 1,697 - ----- Diluted earnings per share: Income from continuing operations and assumed conversions $ 181 46,231 $ - ================================================================================ ================================================================================ 1997 ---------------------------------------- Loss Shares Per Share (in thousands) (Numerator) (Denominator) Amount ================================================================================ Basic earnings per share: Loss from continuing operations $(1,084) 44,534 $ (0.02) ====== ====== Effect of Dilutive Securities: Assumed stock option exercise - - - ------ Diluted earnings per share: Loss from continuing operations and assumed conversions $(1,084) 44,534 $ (0.02) ================================================================================ ================================================================================ 1996 ---------------------------------------- Income Shares Per Share (in thousands) (Numerator) (Denominator) Amount ================================================================================ Basic earnings per share: Income from continuing operations $13,825 44,534 $ 0.31 ====== ====== Effect of Dilutive Securities: Assumed stock option exercise - 1,603 - ------ Diluted earnings per share: Income from continuing operations and assumed conversions $13,825 46,137 $ 0.30 ================================================================================ -19- AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Note 6 - Discontinued Investment Management Operations On October 4, 1996, the Company sold its entire ownership interest in Augustine to Augustine, for $500,000 in cash. Accordingly, as of September 30, 1996, the operations of Augustine were designated as discontinued operations, and the consolidated statements of operations for the periods presented herein were retroactively reclassified to report the income from discontinued operations separately from the results of continuing operations by excluding the operating revenues and expenses of discontinued operations from the respective statement captions. The amount of income taxes allocated to discontinued operations reflects the incremental effect on income taxes that resulted from such operations. Income from discontinued operations was $207,000 for 1996. This reflects the unaudited results of Augustine's operations of $59,000 for the nine month period ended September 30, 1996, and a gain of $148,000 from the sale. Note 7 - 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. At December 31, 1998, 1997 and 1996, there were 44,533,519 shares of the Company's Common Stock outstanding, excluding 126,488 treasury shares carried at average cost of $5.12 per share, aggregating approximately $647,000. At December 31, 1998, there were 6,860,000 shares reserved for issuance under the Company's stock option and other employee benefit plans. Accumulated other comprehensive income (loss) shown in the Consolidated Statements of Changes in Stockholders' Equity at December 31, 1995 is comprised of the accumulated losses on investment securities available for sale. The change in other comprehensive income (loss) during 1996 reflects a reclassification adjustment of $144,000 for losses realized on the sale of investment securities - available for sale. 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. -20- AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Note 8 - 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) 1998 1997 1996 ================================================================================ Service cost of current period $ 337 $ 306 $ 225 Interest cost on projected benefit obligation 337 335 336 - -------------------------------------------------------------------------------- $ 674 $ 641 $ 561 ================================================================================ 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) 1998 1997 ================================================================================ Projected benefit obligation at beginning of year $ 5,045 $ 4,732 Service cost 337 306 Interest cost 337 335 Actuarial loss, including effect of change in assumptions 894 172 Benefits paid (460) (500) - -------------------------------------------------------------------------------- Projected benefit obligation at end of year $ 6,153 $ 5,045 ================================================================================ 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) 1998 1997 ================================================================================ Actuarial present value of benefit obligations: Accumulated benefit obligations, fully vested $ 5,019 $4,513 ================================================================================ Projected benefit obligation for service rendered to date $ 6,153 $5,045 Unrecognized net loss (1,074) (180) - -------------------------------------------------------------------------------- Accrued pension costs $ 5,079 $4,865 ================================================================================ Major assumptions: Pre-retirement and postretirement discount rate 6.75% 7.0% 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 $26,000, $18,000 and $16,000 in 1998, 1997 and 1996, respectively. All contributions are subject to maximum limitations contained in the Code. -21- AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Note 9 - 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. The Company accounts for postretirement benefits other than pensions in accordance with Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". This statement requires the costs of certain postretirement benefits to be recognized during the period employees render service, with all such costs being recognized in full by the eligibility date. Net periodic postretirement benefit (income) expense for the years ended December 31 was as follows: ================================================================================ (in thousands) 1998 1997 1996 ================================================================================ Interest cost on accumulated postretirement benefit obligation $ 22 $ 23 $ 32 Amortization of prior service liability (66) (66) (62) Amortization of unrecognized gain (41) (45) (37) - -------------------------------------------------------------------------------- Net periodic postretirement benefit (income) expense $(85) $ (88) $ (67) ================================================================================ 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) 1998 1997 ================================================================================ Accumulated postretirement benefit obligation at beginning of year $323 $323 Interest cost 22 23 Amendments (87) - Actuarial (gain) loss, including effect of assumption changes (13) 3 Plan participant contributions 52 50 Benefit premiums paid (78) (76) - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation at end of year $219 $323 ================================================================================ The accrued postretirement benefit liability at December 31 is summarized below: ================================================================================ (in thousands) 1998 1997 ================================================================================ Accumulated postretirement benefit obligation: Retirees $ 219 $ 323 - -------------------------------------------------------------------------------- Unrecognized net gains 450 478 Unrecognized prior service liability 632 611 - -------------------------------------------------------------------------------- Accrued postretirement benefit liability $1,301 $1,412 ================================================================================ -22- AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) The accumulated benefit obligation for 1998, 1997 and 1996 was determined using the projected unit credit method and a discount rate of 6.75%, 7.0% and 7.5%, respectively. The health care cost trend rates were assumed to be 8% in 1998, 9% in 1997, and 10% in 1996, 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. 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 13 (11) ================================================================================ Note 10 - 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. -23- AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) 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 1998, the Board of Directors of the Company approved the award of incentive stock options to certain employees to acquire 85,000 shares of AmBase Common Stock at exercise prices between $3.65 and $4.02 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, 1998, 1,750,000 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. -24- AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) 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, 1995 - $ - 1,763 $0.15 Granted 100 2.09 - - - -------------------------------------------------------------------------------- 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 ================================================================================ Options exercisable at: December 31, 1996 - $ - 1,456 $ 0.13 December 31, 1997 50 2.09 1,750 0.15 December 31, 1998 103 2.11 1,750 0.15 ================================================================================ ================================================================================ 1993 Stock 1985 Stock Incentive Plan Option Plan ================================================================================ Weighted average fair value of options granted during: 1996 $ 1.35 $ - 1997 1.81 - 1998 1.89 - ================================================================================ The following table summarizes information about the Company's stock options outstanding and exercisable under the 1985 Plan and 1993 Plan at December 31, 1998, 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 1,150 4 years $ 0.11 1,150 $ 0.11 $0.20 to 0.23 600 2 years 0.23 600 0.23 $2.09 100 8 years 2.09 100 2.09 $2.84 to 4.02 90 9 years 3.79 3 2.84 - -------------------------------------------------------------------------------- Total 1,940 1,853 ================================================================================ -25- AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) 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 1998, 1997 and 1996. The fair value of stock options granted by the Company in 1998, 1997 and 1996 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 1998, 1997 and 1996, respectively: dividend yield 0% for all years, expected historical volatility of 0.53, 0.84 and 0.84, risk-free interest rates of 4.65%, 5.84% and 6.15%, 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 1998, 1997 and 1996, 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) 1998 1997 1996 ================================================================================ Net income (loss) As reported $ 181 $(1,084) $14,032 Proforma 61 (1,171) 13,959 ================================================================================ Per share data As reported $ - $ (0.02) $ 0.31 Proforma - (0.02) 0.31 ================================================================================ -26- AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Note 11 - Income Taxes The components of income tax (expense) benefit for the years ended December 31 are as follows: ================================================================================ (in thousands) 1998 1997 1996 ================================================================================ Income tax (expense) benefit: Continuing operations $ (242) $ 191 $7,189 Discontinued investment management operations - - (53) ================================================================================ The components of pretax income (loss) and the difference between income taxes from continuing operations computed at the statutory federal rate of 35% in 1998, 1997 and 1996, and the provision for income taxes from continuing operations for the years ended December 31 follows: ================================================================================ (in thousands) 1998 1997 1996 ================================================================================ Income (loss) from continuing operations before income taxes $ 423 $(1,275) $ 6,636 ================================================================================ Tax (expense) benefit: Tax at statutory federal rate $(148) $ 446 $(2,323) Prior year tax refund - 475 7,613 Benefit of operating loss carryforwards - - 2,323 Accounting loss benefit not recognized - (446) - Accounting loss benefit recognized 148 - - Federal income taxes - - (76) State income taxes (242) (284) (348) - -------------------------------------------------------------------------------- $(242) $ 191 $ 7,189 ================================================================================ The composition of income tax (expense) benefit from continuing operations for the year ended December 31 is as follows: ================================================================================ (in thousands) 1998 1997 1996 ================================================================================ Current: Federal $ - $ - $ (76) State (242) (284) (348) - -------------------------------------------------------------------------------- (242) (284) (424) - -------------------------------------------------------------------------------- Deferred (primarily federal): Prior year tax refund - 475 7,613 - -------------------------------------------------------------------------------- - 475 7,613 - -------------------------------------------------------------------------------- $(242) $ 191 $ 7,189 ================================================================================ 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 13, Legal Proceedings, Disputes with Internal Revenue Service, Withholding Taxes (Netherlands Antilles), for additional details. During 1996, the Company received a 1977 income tax refund of $7,613,000; as a result, City no longer remains open for refunds. This amount was recognized as an income tax benefit in 1996, based on management's continuing review of the overall tax liability position of the Company. -27- AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) In June 1998, the Company paid $12,700,000 to the IRS for tax and estimated interest in full satisfaction of the Company's Fresh Start tax liability, which related to a 1987 tax dispute with the IRS. In connection with the Company's payment to the IRS, the Company also utilized approximately $40 million of NOL's. As a result, the Company has remaining NOL carryforwards of approximately $14 million expiring beginning in 2008, and $145 million of additional NOL carryforwards generated from the Company's tax basis in Carteret/Carteret FSB expiring no earlier than 2007. During 1996, in connection with the completion by the IRS of the Company's 1985 to 1991 federal income tax audits (excluding Fresh Start), the Company made payments to the IRS totaling $1,995,000. These amounts were previously reserved for and charged against the income tax reserves account. 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"), but this information has not yet been received. Based on the Company not making the election decision, as described above, and upon receipt of the requested information from the RTC/FDIC, the Company will amend its consolidated federal income tax returns to include the federal income tax effects of Carteret and Carteret FSB. Based on the information currently available, the Company does not believe a material increase in the Company's tax liabilities will result. The Company anticipates that, as a result of filing a consolidated federal income tax return with Carteret FSB, 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 $145 million are still available. The NOL carryforwards generated from the Company's tax basis in Carteret/Carteret FSB would expire no earlier than 2007, and 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 1997 (subject to IRS audit adjustments) (excluding the NOL carryforwards from the Company's tax basis in Carteret/Carteret FSB, as noted above), at December 31, 1998 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 5,000,000 2012 1,000,000 ----------- $14,000,000 =========== 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 $25 million and $33 million as of December 31, 1998 and 1997, 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. -28- AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Note 12 - Commitments and Contingencies Future minimum rental payments, principally for office space, under noncancellable operating leases at December 31, 1998, are: 1999, $79,000; 2000, $80,000; 2001, $20,000. Rent expense charged to earnings was $66,000, $67,000 and $46,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Note 13 - Legal Proceedings (a) The Company is or has been a defendant in a number of lawsuits or proceedings, including the following: Rolo and Tenerelli v. City Investing Company Liquidating Trust, et al. This was a purported class action filed in the United States District Court for the District of New Jersey (the "District Court"). Plaintiffs asserted a variety of Federal and state causes of action in connection with an alleged fraudulent scheme involving the marketing and sale of homesites and houses by General Development Corporation ("GDC"), a former subsidiary of City. Plaintiffs named as defendants the Company and Carteret, as well as a number of directors and other financial institutions that had business dealings with GDC. On December 27, 1993, the District Court entered an Order and Opinion dismissing the action against all parties (amended on January 17, 1994, to include the dismissal of Carteret Bancorp, Inc. and Carteret). Plaintiffs appealed the order to the United States Court of Appeals for the Third Circuit (the "Appeals Court") which affirmed the order and subsequently remanded the case for reconsideration in light of an intervening decision. Upon remand, the District Court again dismissed plaintiffs' complaint on August 24, 1995 and denied plaintiffs' petition for reconsideration. Plaintiffs appealed the District Court's order to the Appeals Court. On August 31, 1998, the Appeals Court affirmed dismissal of this action by the District Court. On November 30, 1998, the time for Plaintiffs to seek review of the decision of the Appeals Court expired. As a result, this litigation has terminated without liability to the Company or any of the other defendants and, therefore, this action is concluded. In United States v. Brown, an action commenced in the United States District Court for the Southern District of Florida, certain officers of GDC, none of whom were officers of the Company, were convicted of violating the Federal Mail Fraud Statute and certain other related statutes. This development led two of GDC's insurers, National Union Fire Insurance Co. and Pacific Insurance Co., to seek to terminate their directors and officers' insurance coverage in two actions pending in the United States District Court for the Southern District of Florida, Pacific Insurance Co. v. Brown, et al. and National Union Fire Ins. Co. v. Brown, et al. During the fourth quarter of 1996, the U.S. Court of Appeals for the 11th Circuit reversed the conviction of the officers of GDC. Although the Company was not a party to these actions, certain individuals who were directors of GDC and the Company were defendants. It was possible that if the insurers were successful in terminating coverage of these former directors, the Company may have been exposed to claims for indemnification. The parties to this litigation had been engaged in settlement negotiations for a considerable period of time. During the last quarter of 1998, this litigation was settled by the parties thereto and no further claims are expected to be made. Therefore, this action is concluded. 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 in his favor. 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 trial of this case has been adjourned by the Court until June 1999. -29- AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) Dispute with Internal Revenue Service. 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. Withholding Taxes (Netherlands Antilles). 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 have subsequently been submitted to the Tax Court. 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"). 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, including those identified in (a) above, 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. -30- AMBASE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) (b) Supervisory Goodwill Litigation: During the third quarter of 1993, the Company filed a claim against the United States, in the United States Court of Federal Claims (the "Court of Federal Claims"), based upon the impact of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") on the Company's investment in Carteret. 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 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 December 22, 1997, the Court issued a decision which addressed eleven "common issues" applicable to a number of the Winstar-related cases, and rejected the government's arguments with respect to each such issue. Although this decision is also beneficial to the Company's case, it is 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. Case-specific discovery in thirty Winstar-related cases, including the Company's case, commenced in April 1998. Fact discovery is currently scheduled to be completed by June 30, 1999. 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. Note 14 - 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 1998 and 1997 cost for these privately placed shares. The carrying value of applicable other liabilities approximates their fair value. Note 15 - Supplemental Disclosure of Cash Flow Information Additional information regarding cash flow for the years ended December 31 is as follows: ================================================================================ (in thousands) 1998 1997 1996 ================================================================================ Cash received (paid) during the period: Income tax refunded (paid), net $(12,940) $ 244 $5,190 ================================================================================ 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. In 1996, income taxes refunded (paid) include a 1977 tax refund of $7,613,000 and $1,995,000 of payments to the IRS, principally for the 1985 through 1991 tax years. -31- AMBASE CORPORATION AND SUBSIDIARIES Note 16 - Quarterly Financial Information (unaudited) Summarized quarterly financial information follows: ================================================================================ (in thousands, except First Second Third Fourth Full per share data) Quarter Quarter Quarter Quarter Year ================================================================================ 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) from continuing operations before income taxes (239) (287) 2,419 (1,470) 423 Income tax (expense) benefit (64) (64) (59) (55) (242) - -------------------------------------------------------------------------------- Income (loss) from continuing operations (303) (351) 2,360 (1,525) 181 Income from discontinued investment management operations, net of income taxes - - - - - - -------------------------------------------------------------------------------- Net income (loss) $(303) $ (351) $2,360 $(1,525) $ 181 ================================================================================ Earnings per common share - basic: Income (loss) from continuing operations $(0.01) (0.01) $0.05 $(0.03) $ - Income from discontinued operations - - - - - - -------------------------------------------------------------------------------- Net income (loss) $(0.01) $(0.01) $0.05 $(0.03) $ - ================================================================================ Earnings per common share - assuming dilution: Income (loss) from continuing operations $(0.01) (0.01) $0.05 $(0.03) $ - Income from discontinued operations - - - - - - -------------------------------------------------------------------------------- Net income (loss) $(0.01) $(0.01) $0.05 $(0.03) $ - ================================================================================ 1997: Operating expenses $ 672 $ 707 $ 618 $1,998 $3,995 - -------------------------------------------------------------------------------- Operating loss (672) (707) (618) (1,998) (3,995) Interest income 689 663 656 653 2,661 Other income - - 55 4 59 - -------------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes 17 (44) 93 (1,341) (1,275) Income tax (expense) benefit 405 (70) (73) (71) 191 - -------------------------------------------------------------------------------- Income (loss) from continuing operations 422 (114) 20 (1,412) (1,084) Income from discontinued investment management operations, net of income taxes - - - - - - -------------------------------------------------------------------------------- Net income (loss) $ 422 $ (114) $ 20 $(1,412) $(1,084) ================================================================================ Earnings per common share - basic: Income (loss) from continuing operations $0.01 $ - $ - $ (0.03) $ (0.02) Income from discontinued operations - - - - - - -------------------------------------------------------------------------------- Net income (loss) $0.01 $ - $ - $ (0.03) $ (0.02) ================================================================================ Earnings per common share - assuming dilution: Income (loss) from continuing operations $0.01 $ - $ - $ (0.03) $ (0.02) Income from discontinued operations - - - - - - -------------------------------------------------------------------------------- Net income (loss) $0.01 $ - $ - $ (0.03) $ (0.02) ================================================================================ -32- AMBASE CORPORATION AND SUBSIDIARIES 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 14, 1999, 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 14, 1999, 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 14, 1999, 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 14, 1999, 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. -33- AMBASE CORPORATION AND SUBSIDIARIES 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). -34- AMBASE CORPORATION AND SUBSIDIARIES 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). 22. 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, 1998. -35- AMBASE CORPORATION AND SUBSIDIARIES 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 22nd day of March 1999. 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 22nd day of March 1999. RICHARD A. BIANCO JOHN P. FERRARA Chairman, President and Vice President, Chief Financial Officer Chief Executive Officer and Controller (Principal Financial and Accounting Officer) ROBERT E. LONG JOHN B. COSTELLO Director Director -36- AMBASE CORPORATION AND SUBSIDIARIES 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. 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 1999 Annual Meeting is AmBase Corporation currently scheduled to be held at 51 Weaver Street, Bldg. 2 9:00 a.m. Eastern Daylight Time, Greenwich, CT 06831-5155 on Friday, May 14, 1999, at: (203) 532-2000 Hyatt Regency Hotel 1800 East Putnam Avenue Greenwich, CT 06870 STOCKHOLDER INQUIRIES COMMON STOCK TRADING Stockholder inquiries, including AmBase stock is traded through one requests for the following:(i) change or more market-makers with quotations of address; (ii) replacement of lost made available in the "pink sheets" stock certificates; (iii) Common Stock published by the National Quotation name registration changes; (iv) Bureau, Inc. Quarterly Reports on Form 10-Q; (v) Annual Reports on Form 10-K; (vi) ISSUE ABBREVIATION TICKER SYMBOL proxy material; and (vii) information regarding stockholdings, should be Common AmBase ABCP directed to: Stock AMERICAN STOCK TRANSFER AND TRUST TRANSFER AGENT AND REGISTRAR COMPANY 40 Wall Street - 46th Floor AMERICAN STOCK TRANSFER AND TRUST New York, NY 10005 COMPANY Attention: Shareholder Services 40 Wall Street - 46th Floor (800) 937-5449 or (718) 921-8200 New York, NY 10005 Attention: Shareholder Services In addition, the Company's public (800) 937-5449 or (718) 921-8200 reports, including Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K INDEPENDENT ACCOUNTANTS and Proxy Statements, can be obtained through the Securities and Exchange PRICEWATERHOUSECOOPERS LLP Commission EDGAR Database over the 1177 Avenue of the Americas World Wide Web at www.sec.gov. New York, NY 10036 NUMBER OF STOCKHOLDERS As of January 29, 1999, there were approximately 21,000 stockholders. -37- EXHIBITS ATTACHED WITH THIS FORM 10-K Exhibit No. Description - ------- ----------- 22 Subsidiaries of the Registrant 23 Consent of Independent Accountants 27 Financial Data Schedule -38- EX-22 2 AMBASE CORPORATION - SUBSIDIARY LISTING AMBASE CORPORATION SUBSIDIARY LISTING AS OF DECEMBER 31, 1998 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 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, 1999 appearing 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 22, 1999 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1998 DEC-31-1998 2,886 47,156 0 0 0 0 0 0 51,638 0 0 0 0 447 (25,447) 51,638 0 0 0 0 4,555 0 0 423 242 181 0 0 0 181 0 0
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