AMBASE CORPORATION
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(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, 2005
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 1-07265
AMBASE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2962743
(State of incorporation) (I.R.S. Employer Identification No.)
100 Putnam Green, 3rd Floor, Greenwich, CT 06830-6027
(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 532-2000
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock ($0.01 par value)
Rights to Purchase Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes No X
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes No X
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. X
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one): Large Accelerated Filer Accelerated Filer Non-Accelerated Filer X
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
At February 28, 2006, there were 46,233,519 shares of registrant's Common
Stock outstanding. At June 30, 2005 the aggregate market value of registrant's
voting securities (consisting of its Common Stock) held by nonaffiliates of the
registrant, based on the average bid and asking price on such date of the Common
Stock of $0.67 per share, was approximately $24 million. The Common Stock
constitutes registrant's only outstanding class of security.
Portions of the registrant's definitive Proxy Statement for its 2006 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 15, Page 43.
AmBase Corporation
Annual Report on Form 10-K
December 31, 2005
TABLE OF CONTENTS Page
- ---------------------------------------------- ------
PART I
Item 1. Business............................................................................................1
Item 1A. Risk Factors........................................................................................2
Item 1B. Unresolved Staff Comments...........................................................................5
Item 2. Properties..........................................................................................5
Item 3. Legal Proceedings...................................................................................5
Item 4. Submission of Matters to a Vote of Security Holders.................................................5
Executive Officers of the Registrant................................................................5
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of
Equity Securities.................................................................................6
Item 6. Selected Financial Data.............................................................................6
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................................7
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.........................................14
Item 8. Financial Statements and Supplementary Data........................................................15
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.......................................................................................41
Item 9A. Controls and Procedures............................................................................41
Item 9B. Other Information..................................................................................41
PART III
Item 10. Directors and Executive Officers of the Registrant.................................................41
Item 11. Executive Compensation.............................................................................41
Item 12. Security Ownership of Certain Beneficial Owners & Management.......................................42
Item 13. Certain Relationships and Related Transactions.....................................................42
Item 14. Principal Accountant Fees and Services.............................................................42
PART IV
Item 15. Exhibits and Financial Statement Schedules.........................................................43
PART I
ITEM 1. BUSINESS
AmBase Corporation (the "Company" or "AmBase") is a Delaware corporation
that was incorporated in 1975 by City Investing Company ("City"). AmBase is a
holding company that, through a wholly owned subsidiary, owns one commercial
office building in Greenwich, Connecticut that is managed and operated by the
Company. The building is approximately 14,500 square feet and is available for
lease to unaffiliated third parties with approximately 3,500 square feet
utilized by the Company for its executive offices. The executive office of the
Company is located at 100 Putnam Green, Third Floor, Greenwich, Connecticut
06830.
The Company's assets currently consist primarily of cash and cash
equivalents, investment securities, and real estate owned. The Company's main
source of operating revenue is rental income received from real estate owned.
The Company also earns non-operating revenue principally consisting of interest
income earned on investment securities and cash equivalents. The Company
continues to evaluate a number of possible acquisitions, and is engaged in the
management of its assets and liabilities, including the contingent assets, as
described in Part II - Item 8 - Notes 9 and 10 to the Company's consolidated
financial statements. From time to time, the Company and its subsidiaries may be
named as a defendant in various lawsuits or proceedings. The Company intends to
aggressively contest all litigation and contingencies, as well as pursue all
sources for contributions to settlements. The Company had 5 employees at
December 31, 2005.
In July 2005, the Company completed the sale of its 38,000 square foot
office building at Two Soundview Drive in Greenwich, Connecticut ("Two
Soundview"). Accordingly, the results of operations of Two Soundview have been
retroactively reclassified as discontinued operations in the accompanying
Consolidated Statement of Operations for the periods presented in accordance
with Financial Accounting Standards Board, Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"). See Part II - Item 8 - Note 13 to the Company's
Consolidated Financial Statements for further information.
Background
City originally incorporated AmBase as the holding company for The Home
Insurance Company, and its affiliated property and casualty insurance companies
("The Home"). In 1985, City, which 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 in February 1991.
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. See
Part II - Item 8 - Note 10 to the Company's consolidated financial statements
for a discussion of Supervisory Goodwill litigation relating to Carteret.
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 equity interest in SDG, Inc. ("SDG") and was granted the
exclusive right to act as the investment banking/financial advisor to SDG, Inc.
and all of its subsidiaries and affiliates. The Company also purchased
convertible preferred and common stock in AMDG, Inc. ("AMDG"), a majority owned
subsidiary of SDG. SDG and AMDG are development stage pharmaceutical companies.
In 2002 the Company recorded a write down of its investments in SDG and AMDG.
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
59 Maiden Lane
New York, NY 10038
Attention: Shareholder Services
(800) 937-5449 or (718) 921-8200 Ext. 6820
Copies of Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and
Proxy Statements can also be obtained directly from the Company free of charge
by sending a request to the Company by mail as follows:
AmBase Corporation
100 Putnam Green, 3rd Floor
Greenwich, CT 06830
Attn: Shareholder Services
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"). Accordingly, 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 ("SEC") EDGAR Database over the World Wide Web at www.sec.gov.
Materials filed with the SEC may also be read or copied by visiting the SEC's
Public Reference Room, 450 Fifth Street, NW, Washington, DC 20549. Information
on the operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
ITEM 1A. RISK FACTORS
The Company is subject to various risks, many of which are beyond the
Company's control, which could have a negative effect on the Company and its
financial condition. As a result of these and other factors, the Company may
experience material fluctuations in future operating results on a quarterly or
annual basis, which could materially and adversely affect the Company's
business, financial condition, operating results and stock price. An investment
in the Company's stock involves various risks, including those mentioned below
and elsewhere in this Annual Report on Form 10-K (this "Annual Report"), and
those that are detailed from time to time in the Company's other filings with
the Securities and Exchange Commission. You should carefully consider the
following risk factors, together with all of the other information included or
incorporated by reference in this Annual Report, before you decide whether to
purchase the Company's common stock.
The Company is a plaintiff in a legal proceedings seeking recovery of
damages for the loss of the Company's investment in Carteret. There can be no
assurances of a favorable outcome for the Company in this legal proceeding.
The Company is a plaintiff in a legal proceedings seeking recovery of
damages from the United States Government for the loss of the Company's wholly
owned subsidiary, Carteret Savings Bank, F.A. This legal proceeding was
commenced in 1993 and will likely continue for several more years. There have
been and may continue to be rulings in other "supervisory goodwill" cases which
have had and/or may have adverse affects on the Company's Supervisory Goodwill
proceeding. In addition, due to the extended length of time that proceedings,
rulings, trial decisions and possible appeals in this matter may take, it is not
possible for the Company to predict when this matter will be resolved or the
likelihood of a favorable outcome.
The Company is subject to risks inherent in owning and leasing real estate.
The Company is subject to varying degrees of risk generally related to
leasing and owning real estate many of which are beyond the Company's control.
In addition to general risks related to owning commercial real estate, the
Company's risks include, among others:
o deterioration in regional and local economic and real estate market
conditions,
o potential changes in supply of, or demand for rental properties similar
to the Company's,
o competition for tenants and changes in rental rates,
o difficulty in reletting properties on favorable terms or at all,
o impairments in the Company's ability to collect rent payments when due,
o the potential for uninsured casualty and other losses,
o the impact of present or future environmental legislation and compliance
with environmental laws,
o adverse changes in zoning laws and other regulations,
o changes in federal or state tax laws, and
o acts of terrorism and war.
Each of these factors could cause a material adverse effect on the
Company's financial condition and results of operations. In addition, real
estate investments are relatively illiquid, which means that the Company's
ability to promptly sell the Company's property in response to changes in
economic and other conditions may be limited.
Property taxes on the Company's property may increase without notice.
The property the Company owns is subject to real property taxes. The real
property taxes on the Company's property and any other properties that the
Company acquires in the future may increase as property tax rates change and as
those properties are assessed or reassessed by tax authorities. To the extent
that the Company's tenants are unable or unwilling to pay such increase in
accordance with their leases, the Company's net operating expenses may increase.
The Company's business is concentrated in Southern Connecticut, and
adverse conditions in the region could negatively impact the Company's
operations.
The Company's current operations are concentrated in Southern Connecticut,
specifically in the Greenwich area. As a result, the Company's financial results
are dependent on the economic strength of that region. Because of the Company's
geographic concentration and its single property, the Company's operations are
more vulnerable to adverse changes in the Greenwich economy than those of
larger, more diversified companies. Should the Company experience softening in
the Company's market and not be able to offset the potential negative market
influences on price and volume, the Company's financial results could be
negatively impacted.
The Company is in a competitive business.
The real estate industry is highly competitive. The Company competes for
tenants with a large number of real estate property owners and other companies
that sublet properties. The Company's principal means of competition are rents
charged in relation to the income producing potential of the location. In
addition, the Company expects other major real estate investors, some with much
greater resources than the Company has, may compete with us for attractive
acquisition opportunities. These competitors include REITs, investment banking
firms and private institutional investors. This competition has increased prices
for commercial properties and may impair the Company's ability to make suitable
property acquisitions on favorable terms in the future.
The Company's future cash flow is dependent on renewal of leases and
reletting of the Company's space.
The Company is subject to risks that financial distress of the Company's
tenants may lead to vacancies at the Company's property, that leases may not be
renewed, that locations may not be relet or that the terms of renewal or
reletting (including the cost of required renovations) may be less favorable
than current lease terms. In addition, numerous properties compete with the
Company's property in attracting tenants to lease space. The number of
competitive properties in a particular area could have a material adverse effect
on the Company's ability to lease the Company's property or newly acquired
properties and on the rents charged. If the Company were unable to promptly
relet or renew the leases for all or a substantial portion of these locations,
or if the rental rates upon such renewal or reletting were significantly lower
than expected, the Company's cash flow could be adversely affected and the
resale value or the Company's property could decline.
The Company may not be able to insure certain risks economically.
The Company may experience economic harm if any damage to the Company's
property is not covered by insurance. The Company cannot be certain that the
Company will be able to insure all risks that the Company desires to insure
economically or that all of the Company's insurers will be financially viable if
the Company make a claim. The Company may suffer losses that are not covered
under the Company's insurance policies. If an uninsured loss or a loss in excess
of insured limits should occur, the Company could lose capital invested in a
property, as the well as any future revenue from the property.
Changes in the composition of the Company's assets and liabilities through
acquisitions or divestitures may affect the Company's results.
The Company may make future acquisitions or divestitures of assets. Any
change in the composition of the Company's assets and liabilities could
significantly affect the Company's financial position and the risks that the
Company faces.
The Company may not be able to generate sufficient taxable income to fully
realize the Company's deferred tax asset.
The Company has federal income tax net operating tax loss ("NOL")
carryforwards and other tax attributes. If the Company is unable to generate
sufficient taxable income, the Company may not be able to fully realize the
benefit of the NOL carryforwards.
Because the Company from time to time maintains a majority of its assets in
securities, the Company may in the future be deemed to be an investment company
under the Investment Company Act of 1940 resulting in additional costs and
regulatory burdens.
Currently, the Company believes that either it is not within the definition
of "Investment Company" as the term is defined under the Investment Company Act
of 1940 (the "1940 Act") or, alternatively may rely on one or more of the 1940
Act's exemptions. The Company intends to continue to conduct its operations in a
manner that will exempt the Company from the registration requirements of the
1940 Act. If the Company were to become deemed to be an investment company
because of the Company's investments securities holdings, the Company would be
required to register as an investment company under the 1940 Act. The 1940 Act
places significant restrictions on the capital structure and corporate
governance of a registered investment company, and materially restricts its
ability to conduct transactions with affiliates. Compliance with the 1940 Act
could also increase the Company's operating costs. Such changes could have a
material adverse affect on the Company's business, results of operations and
financial condition.
Terrorist attacks and other acts of violence or war may affect the market
on which the Company's common stock trades, the markets in which the Company
operate, the Company's operations and the Company's results of operations.
Terrorist attacks or armed conflicts could affect the Company's business or
the businesses of the Company's tenants. The consequences of armed conflicts are
unpredictable, and the Company may not be able to foresee events that could have
an adverse effect on the Company's business. More generally, any of these events
could cause consumer confidence and spending to decrease or result in increased
volatility in the U.S. and worldwide financial markets and economy. They also
could be a factor resulting in, or a continuation of, an economic recession in
the U.S. or abroad. Any of these occurrences could have a significant adverse
impact on the Company's operating results and revenues and may result in
volatility of the market price for the Company's common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company owns one commercial office building in Greenwich, Connecticut.
The building is approximately 14,500 square feet and is available for lease to
unaffiliated third parties with approximately 3,500 square feet utilized by the
Company for its executive offices.
ITEM 3. LEGAL PROCEEDINGS
For a discussion of the Company's legal proceedings, including the
Company's Supervisory Goodwill litigation, see Part II - Item 8 - Note 10 to the
Company's consolidated financial statements.
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, 2005:
Name Age Title
==== === ==========
Richard A. Bianco 58 Chairman, President and
Chief Executive Officer
John P. Ferrara 44 Vice President, Chief
Financial Officer and Controller
Mr. Bianco was elected a director of the Company in January 1991, and has
served as President and Chief Executive Officer of the Company since May 1991.
On January 26, 1993, Mr. Bianco was elected Chairman of the Board of Directors
of the Company. He served as Chairman, President and Chief Executive Officer of
Carteret, then a subsidiary of the Company, from May 1991 to December 1992.
Mr. Ferrara was elected to the position of Vice President, Chief Financial
Officer and Controller of the Company in December 1995, having previously served
as Acting Chief Financial Officer, Treasurer and Assistant Vice President and
Controller since January 1995; as Assistant Vice President and Controller from
January 1992 to January 1995; and as Manager of Financial Reporting from
December 1988 to January 1992.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY SECURITIES
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, markdown or commission, and may not necessarily
represent actual transactions.
2005 2004
=========================== ==========================
High Low High Low
==== === ==== ===
First Quarter....................... $ 0.90 $ 0.61 $ 0.83 $ 0.62
Second Quarter...................... 0.75 0.56 0.80 0.60
Third Quarter....................... 0.70 0.58 0.99 0.55
Fourth Quarter...................... 0.71 0.52 1.00 0.77
As of February 28, 2006, there were approximately 15,000 beneficial owners
of the Company's Common Stock. No dividends were declared or paid on the
Company's Common Stock in 2005 or 2004. The Company does not intend to declare
or pay dividends in the foreseeable future.
For information concerning the Company's stockholder rights plan and common
stock repurchase plan, see Part II - Item 8 - Note 5 to the Company's
consolidated financial statements.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with the
Company's consolidated financial statements included in Part II - Item 8 of this
Form 10-K. The consolidated statements of operations, for the periods ended
prior to the July 2005 sale of Two Soundview were retroactively reclassified to
reflect the operations as discontinued operations.
Years ended December 31
====================================================================
(in thousands, except per share data) 2005(a) 2004 2003 2002 (b) 2001 (c)
==== ==== ==== ==== =====
Operating revenue .......................... $ 170 $ 176 $ 320 $ 320 $ 179
Interest income............................. 1,034 505 334 705 2,099
======== ======= ======== ======= =======
Income (loss) from continuing operations.... $ (5,519) (4,696) $ (5,102) $(5,230) $62,110
Income from discontinued operations......... 10,647 1,345 1,543 97 -
-------- ------- -------- ------- -------
Net income (loss)............................. $ 5,128 $(3,351) $ (3,559) $(5,133) $62,110
======== ======= ======== ======= =======
Income (loss) from continuing operations -
Basic $ (0.12) $ (0.10) $ (0.11) $ (0.11) $ 1.34
Income from discontinued operations - Basic. 0.23 0.03 0.03 - -
-------- -------- -------- ------- -------
Net income (loss) per common share - Basic.. $ 0.11 $ (0.07) $ (0.08) $ (0.11) $ 1.34
======== ======== ======== ======= =======
Dividends .................................. - - - - -
======== ======== ======== ======= =======
Total assets ............................... $ 45,883 $ 40,860 $ 41,668 $43,656 $50,445
Total stockholders' equity (deficit)........ 29,682 25,574 29,367 32,902 38,013
======== ======== ======== ======= =======
(a) Net income in 2005 includes a $10,298,000 gain from the sale of Two
Soundview.
(b) Net loss in 2002 includes a $1,600,000 charge to reflect a write down
of the Company's investments in SDG and AMDG.
(c) Net income in 2001 includes a $66,388,000 withholding obligation
reserve reversal which was reflected as other income in the Consolidated
Statement of Operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the consolidated financial
statements and related notes, which are contained in Part II - Item 8, herein.
As a result of the sale of the Company's 38,000 square foot office building at
Two Soundview Drive in Greenwich, CT ("Two Soundview") in July 2005, the results
of operations of Two Soundview have been designated as discontinued operations,
and the Consolidated Statements of Operations for the periods presented herein
have been 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. See Part I - Item 8 - note 13 for additional information
concerning the sale of Two Soundview.
Financial Condition and Liquidity
The Company's assets at December 31, 2005, aggregated $45,883,000,
consisting principally of cash and cash equivalents of $2,852,000, investment
securities of $40,760,000 and real estate owned of $2,222,000. At December 31,
2005, the Company's liabilities aggregated $16,201,000. Total stockholders
equity was $29,682,000.
The liability for the Company's non tax-qualified supplemental retirement
plan initially adopted by the Company in 1985 and as amended and restated (the"
Supplemental Plan"), which is accrued but not funded, increased to $14,595,000
at December 31, 2005 from $11,594,000 at December 31, 2004. The Supplemental
Plan liability reflects the actuarially determined accrued pension costs
calculated in accordance with accounting principles generally accepted in the
United States of America ("GAAP"). The increased liability is the result of
additional accrued service vesting, interest cost on the liability, and the
recognition of a minimum pension liability adjustment as a result of the use of
an updated mortality table and changes in certain assumptions as further
discussed in Applications of Critical Accounting Policies, below. The
Supplemental Plan liability is further affected by changes in discount rates,
mortality, and experience which could be different from those assumed.
The Personnel Committee of the Board of Directors of the Company (the
"Personnel Committee") had been reviewing the Supplemental Plan and the
Company's related liability, including the desirability of continuing to
maintain and administer the Supplemental Plan, the untying of Mr. Bianco's
future employment with the Company from the timing of his Supplemental Plan
benefit payment(s), the Company's overall financial position, and the
desirability of future accruals under the Supplemental Plan after Mr. Bianco's
current employment contract expires on May 31, 2007. In connection with this
review, the Personnel Committee had been considering various options, including
whether or not to terminate and/or curtail the Supplemental Plan. Mr. Bianco
(the Company's Chairman, President and Chief Executive Officer, and the former
President and Chief Executive Officer of Carteret Savings Bank, FA), is the only
current employee of the Company who participates in the Supplemental Plan and
his Supplemental Plan benefit is fully vested. For purposes of computing his
accrued benefit under the Supplemental Plan, Mr. Bianco had 14.67 years of
credited service as of December 31, 2005, and, assuming continued employment
with the Company, will have 16.08 years of credited service upon the expiration
of his current employment contract with the Company on May 31, 2007. His accrual
percentage under the Supplemental Plan is 4%, in effect from the time of his
initial employment with the Company, and in accordance with the Supplemental
Plan, he has had the entitlement to receive his Supplemental Plan benefit in
either a lump-sum or an annuity upon termination of his employment with the
Company.
During March 2006, the Personnel Committee entered into a new employment
agreement with Mr. Bianco to extend his employment with the Company for an
additional five (5) years beyond May 31, 2007, until May 31, 2012 (the "2007
Employment Agreement"). As part of the 2007 Employment Agreement terms (i) Mr.
Bianco's annual rate of base salary will not increase from his current rate of
base salary during the first three years of the 2007 Employment Agreement; (ii)
Mr. Bianco's service accruals under the Supplemental Plan will cease as of May
31, 2007; (iii) Mr. Bianco's Final Average Earnings (as defined in the
Supplemental Plan) for Supplemental Plan benefit calculation purposes, are
capped as of December 31, 2004; and (iv) Mr. Bianco's bonus will no longer be
linked to recovery efforts in connection with the Company's Supervisory Goodwill
litigation. Instead on or about May 31, 2007, Mr. Bianco will receive a lump-sum
payment of his Supplemental Plan benefit of $16,676,115, which amount was
calculated on the basis of a 5.75% discount rate, a "RP-2000" projected to 2004
mortality table; and 16.08 years of credited service, and the Company and Mr.
Bianco have agreed to a long term incentive bonus formula, at varying
percentages ranging from 5% to 10%, or more, based upon recoveries received by
the Company for its investment in Carteret Savings Bank, through litigation or
otherwise (including the Company's Supervisory Goodwill litigation). The
lump-sum Supplemental Plan benefit payment to Mr. Bianco will be paid to him
from the Company's available financial resources.
The Supplemental Plan has been amended to provide for its automatic
termination immediately following the payment to Mr. Bianco of his Supplemental
Plan lump-sum benefit on or about May 31, 2007. In accordance with the
accounting for the Supplemental Plan's scheduled termination on or about May 31,
2007, in accordance with GAAP, the ultimate liability relating to the
anticipated termination of the Supplemental Plan is not reflected in the
financial statements presented herein, as all conditions for the final
termination of the Supplemental Plan have not yet been met. Based on the
actuarially determined accrued pension costs calculated in accordance with GAAP,
the Company will continue to recognize an expense for the Supplemental Plan and
the Supplemental Plan liability will increase through the date on which the
Supplemental Plan is terminated.
For additional information with regard to the Supplemental Plan, see
Application of Critical Accounting Policies - Supplemental Retirement Plan,
below and Part II - Item 8 - Note 7 to the Company's consolidated financial
statements.
In March 2005, the Company paid approximately $1.8 million of previously
incurred legal fees and other expenses relating to the Company's defense of a
withholding obligation issue with the Internal Revenue Service ("IRS") which was
successfully concluded in October 2001. The Company had previously accrued these
costs which were reflected in other liabilities in prior period consolidated
financial statements.
For the year ended December 31, 2005, cash of $5,328,000 was used by
continuing operations, including the payment of operating expenses and prior
years accruals (including the legal accrual described above), partially offset
by the receipt of rental income, interest income and investment earnings. The
cash needs of the Company for 2005 were principally satisfied by rental income
and investment earnings received on investment securities and cash equivalents
and the Company's financial resources. Management believes that the Company's
cash resources are sufficient to continue operations for 2006. During July 2005,
the Company received $27,442,000 of net cash proceeds from the sale of Two
Soundview as further discussed in Part I - Item 8 - note 13. The proceeds were
reinvested in treasury bills and are included in investment securities, held to
maturity in the Consolidated Balance Sheet at December 31, 2005, included in
Part I - Item 8 herein.
For the year ended December 31, 2004, cash of $3,405,000 was used by
continuing operations, including the payment of operating expenses and prior
year accruals, partially offset by the receipt of rental income, interest income
and investment earnings. The cash needs of the Company for 2004 were principally
satisfied by rental income and investment earnings received on investment
securities and cash equivalents and to a lesser extent, the Company's financial
resources.
For the year ended December 31, 2003, cash of $3,855,000 was used by
continuing operations, including the payment of operating expenses and prior
year accruals, partially offset by the receipt of rental income, interest income
and investment earnings. The cash needs of the Company for 2003 were principally
satisfied by rental income and interest income received on investment securities
and cash equivalents and to a lesser extent, the Company's financial resources.
Real estate owned consists of a commercial office building in Greenwich,
Connecticut which the Company owns and manages. The building is approximately
14,500 square feet and is available for lease to unaffiliated third parties with
approximately 3,500 square feet utilized by the Company for its executive
offices.
See Part I - Item 8 - note 13 for further information concerning the sale
of the Company's 38,000 square foot building in July 2005. A gain from the sale,
of approximately $10.3 million, is reflected in the Company's Statement of
Operations for the year ending December 31, 2005.
The Company did not repurchase any shares of common stock during 2005
pursuant to its common stock repurchase plan. There are no additional material
commitments for capital expenditures as of December 31, 2005. 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 assets and liabilities, including the
contingent assets. Discussions and negotiations are ongoing with respect to
certain of these matters. The Company intends to aggressively contest all
litigation and contingencies, as well as pursue all sources for contributions to
settlements. For a discussion of lawsuits and proceedings, including a
discussion of the Supervisory Goodwill litigation, see Part II - Item 8 - Note
10 to the Company's consolidated financial statements.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
The Company's main source of operating revenue has recently been rental
income earned on real estate owned. The Company also earns non-operating revenue
consisting principally of interest income on investment securities and cash
equivalents. The Company's management expects that operating cash needs in 2006
will be met principally by the receipt of non-operating revenue consisting of
interest income earned on investment securities and cash equivalents, the
Company's current financial resources, and rental income on real estate owned.
For the year ended December 31, 2005, the Company recorded a loss from
continuing operations of $5,519,000 or $0.12 per share.
For the year ended December 31, 2004, the Company recorded a loss from
continuing operations of $4,696,000 or $0.10 per share.
For the year ended December 31, 2003, the Company recorded a loss from
continuing operations of $5,102,000 or $0.11 per share.
As indicated herein, as a result of the sale, the operating results of the
Company's Two Soundview property have been reclassified to discontinued
operations and, accordingly rental income from real estate owned represents the
Company's remaining property and was $170,000 in 2005 compared to $176,000 in
2004, and $320,000 in 2003. The decreased amount of $170,000 in 2005, compared
to $176,000 in 2004, is principally the result of office vacancy in 2005
compared to office vacancies during a portion of 2004. The decreased amount of
$176,000 in 2004, compared to $320,000 in 2003, is principally the result of a
decrease in rental income received in 2004 compared to 2003 due to office
vacancies during a portion of 2004 versus occupancy in 2003.
Compensation and benefits increased slightly in 2005 to $4,212,000 from
$4,150,000 in 2004. The increase in 2005 versus 2004 is due to an increase in
Supplemental Retirement Plan accrual offset by lower incentive compensation
amounts in 2005. The increased amount of $4,150,000 in 2004 compared to
$3,852,000 in 2003 is principally due to an increase in supplemental retirement
plan accruals and an increase in the salary and benefits costs. Included in
compensation and benefits is an accrual for the Supplemental Retirement Plan of
$2,087,000 for 2005, $1,890,000 for 2004 and $1,722,000 for 2003.
Professional and outside services increased to $2,003,000 in 2005 from
$1,422,000 in 2004. The increase in the 2005 period is principally the result of
a higher level of legal fees relating to the Supervisory Goodwill litigation as
a result of discovery relating to the Show Cause hearing and to a lesser extent,
other corporate professional fees.
In 2004, professional and outside services decreased slightly to $1,422,000
from $1,432,000 in 2003. The 2004 period includes an additional accrual of
approximately $0.5 million of fees relating to the costs associated with a
withholding obligation issue with the IRS as further discussed in Financial
Condition and Liquidity, herein. Excluding this additional expense, professional
and outside services would have decreased for the year 2004 compared with the
year 2003 primarily due to an overall decrease in legal expenses incurred during
2004 as a result of a lower level of legal fees relating to the Supervisory
Goodwill litigation and the resolution of legal proceedings which were pending
during 2003.
Property operating and maintenance expenses were $124,000 in 2005, $102,000
in 2004, and $119,000 in 2003. The slight increase in 2005 compared to 2004 is
due to increased utilities costs, and repairs and maintenance expenses. The
slight decrease in 2004 compared to 2003 is due to decreased utilities, security
and other maintenance costs.
Interest income was $1,034,000 in 2005, $505,000 in 2004, and $334,000 in
2003. The increase in 2005 compared to 2004 is principally due to an increase in
the aggregate amount of cash equivalents and investment securities invested as a
result of the cash proceeds received in connection with the sale of real estate
owned in July 2005, and to a lesser extent, an increased yield on investments
due to rising interest rates. The increase in 2004 compared to 2003 is
principally due to increased investment return from higher yielding investments
classified as investments available for sale.
During 2005, realized gains on sales of investment securities available for
sale were $20,000 compared to $747,000 during 2004 and compared to $64,000
during 2003. The increase in 2004 is the result of a higher level of investment
securities available for sale and realization of gains on sales due to market
appreciation.
In the year ended December 31, 2003, other income represents a federal
income tax refund for the tax year 1996.
The income tax provision for continuing operations of $95,000 for the year
ending December 31, 2005, is attributable to a provision for a minimum tax on
capital to the State of Connecticut. The Company expects to utilize net
operating loss ("NOL") carryforwards and alternative minimum tax ("AMT") NOL
carryforwards as available to offset taxable income generated from the sale of
Two Soundview as discussed in Part II - Item 8 - Notes 9 and 13 to the Company's
consolidated financial statements. However, due to limitations on the amount of
NOL carryforwards that may be utilized against current year taxable income, the
income tax provision of $400,000 for discontinued operations is attributable to
a provision for federal alternative minimum tax of $150,000 and a provision of
$250,000 for Connecticut state taxes.
The income tax provisions of $120,000 and $125,000 for the years 2004 and
2003, respectively, are primarily attributable to a provision for a minimum tax
on capital to the state of Connecticut.
A reconciliation between income taxes computed at the statutory federal
rate and the provision for income taxes is included in Part II - Item 8 - Note 9
to the Company's consolidated financial statements.
DISCONTINUED OPERATIONS
As discussed in Item 8, note 13, in July 2005, the Company completed to the
sale of Two Soundview. The sale price was $28,000,000 less normal real estate
closing costs and adjustments. A gain from the sale of $10,298,000 is reflected
in the Company's financial statements for the year ended December 31, 2005.
Income from discontinued operations before gain on disposition was $749,000
for the year ended December 31, 2005, which reflects the results of operations
for Two Soundview for the period through July 15, 2005 (date of sale). For the
full year 2004 and 2003 periods, income from discontinued operations was
$1,345,000 and $1,543,000, respectively.
Tabular Disclosure of Contractual Obligations
(in thousands) Payment Due By Period
======================================================
Less Than One to Three to More than
Total One Year Three Years Five Years Five Years
----- --------- ----------- ---------- ----------
Operating leases............................ $ 17 $ 9 $ 8 $ - $ -
------ --------- ----------- ---------- ----------
Total obligations........................... $ 17 $ 9 $ 8 $ - $ -
====== ========= =========== ========== ==========
Application of Critical Accounting Policies
Our consolidated financial statements are based on the selection and
application of accounting principles generally accepted in the United States of
America, which require us to make estimates and assumptions about future events
that affect the amounts reported in our financial statements and the
accompanying notes. Future events and their effects cannot be determined with
absolute certainty. The determination of estimates requires the exercise of
judgment. Actual results could differ from those estimates, and any such
differences may be material to the financial statements. We believe that the
following accounting policies, which are important to our financial position and
results of operations, require a higher degree of judgment and complexity in
their application and represent the critical accounting policies used in the
preparation of our financial statements. If different assumptions or conditions
were to prevail, the results could be materially different from our reported
results. For a summary of all our accounting policies, including the accounting
policies discussed below, see Part II - Item 8 - Note 2 to the Company's
consolidated financial statements.
Supplemental Retirement Plan: Our supplemental retirement plan (the
"Supplemental Plan") accrued liability and benefit costs are developed on the
basis of actuarial calculations. Inherent in these calculations are key
assumptions including discount rates, actuarially determined mortality tables, a
retirement date assumption, form of benefit payment such as annuity versus
lump-sum, and projected future earnings. The assumptions are typically reviewed
on an annual basis at the beginning of each year. We are required to consider
current market conditions, including changes in interest rates, in making these
assumptions. Material changes in our accrued Supplemental Plan liability and
annual costs may occur in the future due to retirement prior to age 60, a
lump-sum payment prior to retirement, changes in assumptions or experience
different than that assumed. The Supplemental Plan liability is not funded and
is net of unrecognized losses of $1,326,000. In accordance with GAAP, the
amortization of unrecognized losses is recognized to financial statement expense
and liability over the remaining employment period for the participant.
In connection with the Board of Directors' determination that the Company's
Supplemental Plan is to terminate automatically following the payment to Mr.
Bianco of his lump-sum benefit on or about May 31, 2007 (the date on which Mr.
Bianco's current employment agreement with the Company will expire by its
terms), the Personnel Committee's agreement with Mr. Bianco to extend his
employment with the Company for an additional five (5) years with no further
Supplemental Plan accruals, and the Company's amendment to the Supplemental Plan
to provide for the payment to Mr. Bianco of his Supplemental Plan benefit on or
about May 31, 2007, certain assumptions utilized by the Company in developing
the Supplemental Plan 2005 benefit costs and accrued liability were changed from
those utilized in prior years. The 2005 assumptions, versus assumptions in 2004
are as follows: (i) we have assumed that Mr. Bianco's Supplemental Plan benefit
(Mr. Bianco is the sole participant in the Supplemental Plan) will be paid in a
lump-sum, versus the assumption made in prior years that annuity payments would
be made; (ii) we have assumed Mr. Bianco's Supplemental Plan benefit entitlement
date to be May 31, 2007 (his current employment contract expiration date and the
date on or about his Supplemental Plan lump-sum benefit payment is to be paid),
versus December 30, 2007 (age 60) in prior years; and (iii) we have projected
that Mr. Bianco's total compensation in 2006 and 2007 for the calculation of
Supplemental Plan benefits will not increase the average of the three highest
years of compensation previously earned under the Supplemental Plan, as Mr.
Bianco's Final Average Earnings (as defined in the Supplemental Plan) for
Supplemental Plan benefit calculation purposes is capped as of December 31,
2004. In addition, a 5.50% discount rate and a "RP-2000" projected to 2004
mortality table were utilized in 2005, versus a 5.75% discount rate and a
"GAM-94" mortality table utilized in 2004.
The 5.50% discount rate, (utilitzed for 2005 actuarial calculations),is
consistent with Moody's Aa bond index rate at December 31, 2005, and the change
in the mortality table reflects an update to a more modern mortality table,
which is being utilized for the calculation of Mr. Bianco's Supplemental Plan
lump-sum benefit payment, pursuant to the agreements.
See Financial Condition and Liquidity, above, and Part II - Item 8 - Note 7
to the Company's consolidated financial statements, for additional information
with regard to the Supplemental Plan.
Legal Proceedings: From time to time the Company and its subsidiaries may
be named as a defendant in various lawsuits or proceedings. The Company
presently is not aware of any pending or threatened litigation which could have
a material adverse effect on the consolidated financial statements presented
herein. Management of the Company in consultation with outside legal counsel
continually reviews the likelihood of liability and associated costs of pending
and threatened litigation including the basis for the calculation of any
litigation reserves which may be necessary. The assessment of such reserves
includes an exercise of judgment and is a matter of opinion. The Company intends
to aggressively contest all threatened litigation and contingencies, as well as
pursue all sources for contributions to settlements. For a discussion of
lawsuits and proceedings, see Part II - Item 8 - Note 10.
Income Tax Audits: The Company's federal, state and local tax returns, from
time to time, may be audited by the tax authorities, which could result in
proposed assessments or a change in the net operating loss ("NOL") carryforwards
currently available. The Company's federal income tax returns for the years
subsequent to 1992 have not been reviewed by the Internal Revenue Service. The
accrued amounts for income taxes reflects management's best judgment as to the
amounts payable for all open tax years.
Deferred Tax Assets: As of December 31, 2005, the Company had deferred tax
assets arising primarily from net operating loss carryforwards and alternative
minimum tax credits available to offset taxable income in future periods. A
valuation allowance has been established for the entire net deferred tax asset
of $32 million, as management, at the current time, has no basis to conclude
that realization is more likely than not. The valuation allowance was calculated
in accordance with the provisions of Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"), which places primary importance on a company's cumulative
operating results for the current and preceding years. We intend to maintain a
valuation allowance for the entire deferred tax asset until sufficient positive
evidence exists to support a reversal. See Part II - Item 8 - Note 9.
New Accounting Pronouncements - FASB Statement No. 123 (revised 2005),
Share-Based Payment - In December 2004, the Financial Accounting Standards Board
("FASB") released Statement of Financial Accounting Standards No. 123R,
"Share-Based Payment" ("SFAS 123R"). This standard requires issuers to measure
the cost of equity-based service awards based on the grant date fair value of
the award. That cost will be recognized over the period during which an employee
is required to provide service in exchange for the award or the requisite
service period (typically the vesting period). No compensation cost is
recognized for equity instruments for which employees do not render the
requisite service. The Company will initially measure the cost of liability
based service awards based on their current fair value. The fair value of that
award will be reimbursed subsequently at each reporting date through the
settlement date. Changes in fair value during the requisite service period will
be recognized as compensation cost over that period. The grant date fair value
of employee share options and similar instruments will be estimated using
option-pricing models adjusted for the unique characteristics of those
instruments. If an equity award is modified after the grant date, incremental
compensation cost will be recognized in an amout equal to the excess of the fair
value of the modified award over the fair value of the original award
immediately before the modification. Companies can comply with SFAS 123R using
one of three transition methods: (1) the modified prospective method; (2) a
variation of the modified prospective method; or (3) the modified retrospective
method. The provisions of this statement are effective for interim and annual
periods beginning after June 15, 2005. The Company will adopt SFAS 123R as of
January 1, 2006, and is still evaluating the financial impact on the Company's
Consolidated Financial Statements.
FIN47, Accounting for Conditional Asset Retirement Obligations - In March
2005, the FASB released FASB Intterpretation No. 47, "Accounting for Conditional
Asset Retirement Obligations", ("FIN47"). FIN47 clarifies that the term
conditional asset retirement obligation as used in SFAS 143. "Accounting for
Asset Retirement Obligations" ("SFAS 143"), as a legal obligation to perform an
asset retirement activity in which the timing and/or method of settlement are
conditional on a future event that may or may not be within the control of the
entity. The obligation to perform the asset retirment activity is unconditional
even though uncertainty exists about the timing and/or method of settlement.
Thus, the timing and/or of settlement may be conditional on a future event.
Accordingly, an entity is required to recognize a liability for the fair value
of a conditional asset retirement obligation if the fair value of the liability
can be reasonably estimated. The fair value of a liability for the conditional
asset retirement obligation should be recognizedd when incurred - generally upon
acquisition, construction, or development and/or through the normal operation of
the asset. Uncertainty about the timing and/or method of settlement of a
conditional asset retirement obligation should be factored into the measurement
of the liability when sufficient information exists. SFAS 143 acknowledges that
in some cases, sufficient information may not be available to reasonably
estimate the fair value of an asset retirement obligation. FIN 47 also clarifies
when an entity would have sufficient information to reasonably estimate the fair
value of an asset retirement obligation. The Company adopted FIN47 during 2005
and does not believe that any asbestos exists in the building that would result
in ARO treatment.
Cautionary Statement for Forward-Looking Information
This Annual Report together with other statements and information publicly
disseminated by the Company may contain certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The Company
intends such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are inherently subject
to risks and uncertainties, many of which cannot be predicted or quantified. The
forward-looking statements may relate to such matters as anticipated financial
performance, future revenues or earnings; business prospects, projected
ventures, anticipated market performance, anticipated litigation results or the
timing of pending litigation, and similar matters. When used in this Annual
Report, the words "estimates," "expects," "anticipates," "believes," "plans,"
"intends" and variations of such words and similar expressions are intended to
identify forward-looking statements that involve risks and uncertainties. These
risks and uncertainties, many of which are beyond the Company's control,
include, but are not limited to those set forth in "Item 1A, Risk Factors" and
elsewhere in this Annual Report and in the Company's other public filings with
the Securities and Exchange Commission including, but not limited to: (i)
transaction volume in the securities markets, (ii) the volatility of the
securities markets, (iii) fluctuations in interest rates, (iv) risks inherent in
the real estate business, including, but not limited to, tenant defaults,
changes in occupancy rates or real estate values, (v) changes in regulatory
requirements which could affect the cost of doing business, (vi) general
economic conditions, (vii) changes in the rate of inflation and the related
impact on the securities markets, (viii) changes in federal and state tax laws,
and (ix) risks arising from unfavorable decisions in the Company's current
material litigation matters, or unfavorable decisions in other supervisory
goodwill cases.
Undue reliance should not be placed on these forward-looking statements,
which are applicable only as of the date hereof. The Company undertakes no
obligation to revise or update these forward-looking statements to reflect
events or circumstances that arise after the date of this Annual Report or to
reflect the occurrence of unanticipated events. Accordingly, there is no
assurance that the Company's expectations will be realized.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company holds short-term investments as a source of liquidity. The
Company's interest rate sensitive investments at December 31, 2005 and 2004,
with maturity dates of less than one year consist of the following:
2005 2004
(in thousands) =================== =================
Carrying Fair Carrying Fair
Value Value Value Value
-------- ------- -------- --------
U.S. Treasury Bills....................................... $39,031 $39,034 $8,590 $ 8,586
======= ======== ======= =======
Weighted average interest rate............................ 3.81% 1.71%
======= =======
The Company's current policy is to minimize the interest rate risk of its
short-term investments by investing in U.S. Treasury Bills with maturities of
less than one year. There were no significant changes in market exposures or the
manner in which interest rate risk is managed during the year.
The Company's portfolio of equity securities has exposure to equity price
risk. Equity price risk is defined as the potential loss in fair value resulting
from an adverse change in prices. The equity securities are primarily in the
form of preferred stock in utility companies. The equity securities are held for
an indefinite period and are carried at fair value with net unrealized gains and
losses recorded directly in a separate component of stockholder's equity.
The table below summarizes the Company's equity price risk and shows the
effect of a hypothetical 20% increase and a 20% decrease in market price as of
the dates indicated below. The selected hypothetical changes are for
illustrative purposes only and are not necessarily indicative of the best or
worse case scenarios.
(in thousands)
12/31/2005 12/31/2004
Equity Securities Available for Sale: ========== ==========
Fair value.......................................................... $1,729 $2,112
======= =======
Hypothetical fair value at a 20% increase in market price........... $2,075 $2,534
======= =======
Hypothetical fair value at a 20% decrease in market price........... $1,383 $1,690
======= =======
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Stockholders of
AmBase Corporation
In our opinion, the accompanying consolidated financial statements listed
in the index appearing under Item 15(a) (1) and the related consolidated
statement of operations, comprehensive income, shareholders' equity and cash
flows present fairly, in all material respects, the financial position of AmBase
Corporation and its subsidiaries at December 31, 2005 and 2004 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2005 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the index appearing under Item 15(a)
(2) presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule 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 the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
New York, New York
March 30, 2006
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31
(in thousands, except per share data) 2005 2004 2003
==== ==== ====
Revenues:
Rental income................................................. $ 170 $ 176 $ 320
-------- -------- --------
Operating expenses:
Compensation and benefits..................................... 4,212 4,150 3,852
Professional and outside services............................. 2,003 1,422 1,432
Property operating and maintenance ........................... 124 102 119
Depreciation ................................................. 51 50 50
Insurance..................................................... 79 90 86
Other operating............................................... 179 190 182
-------- -------- --------
6,648 6,004 5,721
-------- -------- --------
Operating loss................................................ (6,478) (5,828) (5,401)
-------- -------- --------
Interest income............................................... 1,034 505 334
Realized gains of the sales of investment securities
available for sale.......................................... 20 747 64
Other income.................................................. - - 26
-------- -------- --------
Loss from continuing operations before income taxes........... (5,424) (4,576) (4,977)
Income tax expense on continuing operations................... (95) (120) (125)
-------- -------- --------
Loss from continuing operations............................... (5,519) (4,696) (5,102)
-------- -------- --------
Income from operation of discontinued property................ 749 1,345 1,543
Gain on disposition........................................... 10,298 - -
Income tax expense on discontinued operations................. (400) - -
------- -------- --------
Income from discontinued operations........................... 10,647 1,345 1,543
-------- -------- --------
Net income (loss)............................................. $ 5,128 $ (3,351) $ (3,559)
======== ======== ========
Per share data:
Basic:
Loss from continuing operations............................... $ (0.12) $ (0.10) $ (0.11)
Income from discontinued operations........................... 0.23 0.03 0.03
-------- -------- --------
Net income (loss) attributable to common stockholders......... $ 0.11 $ (0.07) $ (0.08)
======== ======== ========
Assuming dilution:
Loss from continuing operations................................ $ (0.12) $ (0.10) $ (0.11)
Income from discontinued operations............................ 0.23 0.03 0.03
-------- -------- --------
Net income (loss) attributable to common stockholders.......... 0.11 (0.07) (0.08)
======== ======== ========
Weighted average common shares outstanding:
Basic.......................................................... 46,234 46,225 46,182
======== ======== ========
Assuming dilution.............................................. 46,234 46,225 46,182
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31
(in thousands, except for share and per share amounts) 2005 2004
==== ====
Assets:
Cash and cash equivalents....................................................... $ 2,852 $10,124
Investment securities:
Held to maturity (market value $39,034 and $8,586, respectively)............ 39,031 8,590
Available for sale, carried at fair value................................... 1,729 2,112
--------- -------
Total investment securities..................................................... 40,760 10,702
--------- -------
Accounts receivable ............................................................ - 1
Real estate owned:
Land....................................................................... 554 6,954
Buildings.................................................................. 1,900 12,810
--------- -------
2,454 19,764
Less: accumulated depreciation ............................................ (232) (763)
--------- -------
Real estate owned, net.......................................................... 2,222 19,001
--------- -------
Other assets.................................................................... 49 1,032
--------- -------
Total assets.................................................................... $ 45,883 $40,860
========= =======
Liabilities and Stockholders' Equity:
Liabilities:
Accounts payable and accrued liabilities........................................ $ 1,568 $ 1,495
Supplemental retirement plan.................................................... 14,595 11,594
Other liabilities............................................................... 38 2,197
--------- -------
Total liabilities............................................................... 16,201 15,286
--------- -------
Commitments and contingencies................................................... - -
--------- -------
Stockholders' equity:
Common stock ($0.01 par value, 200,000,000 authorized,
46,410,007 issued and 46,233,519 outstanding)................................ 464 464
Paid-in capital................................................................. 547,956 547,956
Accumulated other comprehensive loss............................................ (1,395) (375)
Accumulated deficit............................................................. (516,658) (521,786)
Treasury stock, at cost - 176,488 shares........................................ (685) (685)
--------- -------
Total stockholders' equity...................................................... 29,682 25,574
--------- -------
Total liabilities and stockholders' equity...................................... $ 45,883 $40,860
========= =======
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Accumulated other
(in thousands) Common Paid-in comprehensive Accumulated Treasury
stock capital income (loss) deficit stock Total
======= ======== ================= =========== ======== =====
December 31, 2002............. $ 463 $ 547,940 $ 22 $ (514,876) $ (647) $32,902
Net loss...................... - - - (3,559) - (3,559)
Common stock repurchased - - - - (38) (38)
Other comprehensive
income ................. - - 62 - - 62
------- ---------- ------------------ ----------- --------- -------
December 31, 2003............. 463 547,940 84 (518,435) (685) 29,367
Net loss...................... - - (3,351) - (3,351)
Stock options exercised....... 1 16 - - - 17
Other comprehensive
loss ................... - - (459) - - (459)
------- ---------- ------------------ ----------- --------- --------
December 31, 2004............. 464 547,956 (375) (521,786) (685) 25,574
------- ---------- ------------------ ----------- --------- --------
Net income.................... - - - 5,128 - 5,128
Other comprehensive
loss ................... - - (1,020) - - (1,020)
------- ---------- ------------------ ----------- --------- ---------
December 31, 2005............. $ 464 $ 547,956 $ (1,395) $ (516,658) $ (685) $29,682
======= ========== ================== =========== ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
Years Ended December 31
(in thousands)
2005 2004 2003
====== ====== ======
Net income
(loss)......................................................................... $ 5,128 $(3,351) $(3,559)
Minimum pension liability adjustment, net of tax effect of $0.................. (914) (412) -
Unrealized holding gains on investment securities - available for sale, net of
tax effect of $0........................................................ (106) (47) 62
------- ------- -------
Comprehensive income
(loss)......................................................................... $ 4,108 $(3,810) $(3,497)
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31
(in thousands) 2005 2004 2003
==== ==== ====
Cash flows from operating activities:
Loss from continuing operations.......................................... $(5,519) $(4,696) $(5,102)
Adjustments to reconcile loss from continuing operations to net cash used by
continuing operations:
Accretion of discount - investment securities........................ (575) (115) (198)
Depreciation and amortization........................................ 51 50 50
Realized gains on investment securities available for sale........... (20) (747) (64)
Changes in other assets and liabilities:
Accounts receivable ................................................. 1 - -
Other assets......................................................... 426 (454) -
Accounts payable and accrued liabilities............................. 73 119 (187)
Other liabilities.................................................... 233 2,440 1,646
Other, net............................................................... 2 (2) -
------- ------- -------
Net cash used by continuing operating activities......................... (5,328) (3,405) (3,855)
------- ------- -------
Income from discontinuing operations.................................... 10,647 1,345 1,543
Adjustments to reconcile income from discontinued operations to net cash
provided by discontinued operations:
Gain from sale of discontinued operations........................... (10,298) - -
Depreciation and amortization related to discontinued operations.... 140 280 279
Changes in other assets and liabilities related to discontinued operations:
Other assets & other liabilities.................................... (305) (116) (125)
------- ------- -------
Net cash provided by discontinued operations............................ 184 1,509 1,697
------- ------- -------
Net cash used by operating activities................................... (5,144) (1,896) (2,158)
------- ------- --------
Cash flows from investing activities:
Maturities of investment securities - held to maturity................... 81,627 25,894 50,001
Purchases of investment securities - held to maturity.................... (111,493) (17,040) (48,873)
Purchases of investment securities - available for sale.................. (252) (17,426) (1,668)
Sales of investment securities - available for sale...................... 548 17,790 641
Building improvements.................................................... - - (38)
Proceeds from sale of real estate owned.................................. 27,442 - -
------- ------- -------
Net cash (used) provided by investing activities......................... (2,128) 9,218 63
------- ------- -------
Cash flows from financing activities:
Stock options exercised.................................................. - 17 -
Common stock repurchased................................................. - - (38)
------- ------- -------
Net cash (used) provided by financing activities......................... - 17 (38)
------- ------- -------
Net (decrease) increase in cash and cash equivalents..................... (7,272) 7,339 (2,133)
Cash and cash equivalents at beginning of year........................... 10,124 2,785 4,918
------- ------- -------
Cash and cash equivalents at end of year................................. $ 2,852 $10,124 $ 2,785
======= ======= =======
Supplemental cash flow disclosure:
Income taxes paid........................................................ $ 100 $ 162 $ 135
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization
AmBase Corporation (the "Company") is a holding company which, through a
wholly owned subsidiary, owns a commercial office building in Greenwich,
Connecticut and a 6.3% ownership interest in SDG, Inc. ("SDG"), a development
stage pharmaceutical company. The Company previously owned an insurance company
and a savings bank.
In February 1991, the Company sold its ownership interest in The Home
Insurance Company ("The Home") and its subsidiaries. On December 4, 1992,
Carteret Savings Bank, FA ("Carteret") was placed in receivership by the Office
of Thrift Supervision ("OTS").
The Company's main source of operating revenue is rental income earned on
real estate owned. The Company also earns non-operating revenue principally
consisting of interest earned on investment securities and cash equivalents. The
Company continues to evaluate a number of possible acquisitions, and is engaged
in the management of its assets and liabilities, including the contingent
assets, as described in Notes 9 and 10.
In July 2005, the Company completed the sale of its 38,000 square foot
office building at Two Soundview Drive in Greenwich, Connecticut ("Two
Soundview"). Accordingly, the results of operations of Two Soundview have been
retroactively reclassified as discontinued operations in the accompanying
Consolidated Statement of Operations for the periods presented in accordance
with Financial Accounting Standards Board, Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"). See Part II - Item 8 - Note 13 to the Company's
Consolidated Financial Statements.
Note 2 - Summary of Significant Accounting Policies
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
("GAAP"). Certain reclassifications have been made to the prior year
consolidated financial statements to conform to the 2005 presentation.
Use of estimates in the preparation of financial statements:
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions, that it deems reasonable, that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from such estimates and assumptions.
Principles of consolidation:
The consolidated financial statements are comprised of the accounts of the
Company and its majority owned subsidiaries. All material intercompany
transactions and balances have been eliminated. The Company continually reviews
its investments to determine whether a decline in fair value below the cost
basis is other than temporary. If the decline in fair value is judged to be
other than temporary, the cost basis of the security is written down to fair
market value and the amount of the write down is included in the Consolidated
Statement of Operations.
Cash and cash equivalents:
Highly liquid investments, consisting principally of funds held in
short-term money market accounts, are classified as cash equivalents with
original maturities of less than three months.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Investment securities:
Securities that the Company has both the positive intent and ability to
hold to maturity are classified as investment securities - held to maturity and
are carried at amortized cost. Investment securities - available for sale, which
are those securities that may be sold prior to maturity, are carried at fair
value, with any net unrealized gains or losses reported in a separate component
of stockholders' equity, net of taxes.
Interest and dividends on investment securities are recognized in the
Consolidated Statement of Operations when earned. Realized gains and losses on
the sale of investment securities - available for sale are calculated using an
average cost basis for determining the cost basis of the securities. The fair
value of publicly traded investment securities is determined by reference to
current market quotations.
Income taxes:
The Company and its domestic subsidiaries file a consolidated federal
income tax return. The Company recognizes both the current and deferred tax
consequences of all transactions that have been recognized in the financial
statements, calculated based on the provisions of enacted tax laws, including
the tax rates in effect for current and future years. Net deferred tax assets
are recognized immediately when a more likely than not criterion is met; that
is, a greater than 50% probability exists that the tax benefits will actually be
realized sometime in the future. At the present time, management has no basis to
conclude that realization is more likely than not and a valuation reserve has
been recorded against net deferred tax assets.
Earnings per share:
Basic earnings per share ("EPS") excludes dilution and is computed by
dividing income (loss) from continuing operations by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution of EPS that could occur if options to issue common stock were
exercised.
Stock-based compensation:
The Company adopted the disclosure requirements of the Financial Accounting
Standards Board, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") and continues to account
for stock compensation using APB Opinion 25, "Accounting for Stock Issued to
Employees" ("APB 25"), making pro forma disclosures of net income (loss) and
earnings per share as if the fair value based method had been applied. No
compensation expense, attributable to stock incentive plans, has been charged to
earnings. For a further discussion and a summary of assumptions used, see Note
8.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. If the Company
had elected to recognize compensation cost for stock options based on the fair
value at the date of grant for stock options, consistent with the method
prescribed by Statement 123, net loss and net loss per share for the year ended
December 31, would have been changed to the pro forma amounts indicated below.
(in thousands, except per share data) 2005 2004 2003
Net income (loss): ===== ===== =====
As reported..................................................... $ 5,128 $ (3,351) $ (3,559)
Deduct: pro forma stock based compensation expense for
stock options pursuant to Statement 123..................... (126) (79) (104)
--------- --------- ---------
Pro forma....................................................... $ 5,002 $ (3,430) $ (3,663)
========= ========= =========
Net income (loss) per common share:
Basic - as reported............................................. $ 0.11 $ (0.07) $ (0.08)
Basic - pro forma............................................... 0.11 (0.07) (0.08)
Assuming dilution - as reported................................. 0.11 (0.07) (0.08)
Assuming dilution - pro forma .................................. 0.11 (0.07) (0.08)
========= ========= =========
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Deferred rent receivable and revenue recognition:
The Company earns rental income under operating leases with tenants.
Minimum lease rentals are recognized on a straight-line basis over the term of
the leases. The cumulative difference between lease revenue recognized under
this method and the contractual lease payment terms is recorded as deferred rent
receivable and the balances of $5,000 and $505,000 as of December 31, 2005 and
December 31, 2004, respectively are included in other assets on the Consolidated
Balance Sheets. The amount of deferred rent receivable as of December 31, 2004
includes $493,000 relating to Two Soundview. Revenue from tenant reimbursement
of common area maintenance, utilities and other operating expenses are
recognized pursuant to the tenant's lease when earned and due from tenants.
Property operating and maintenance:
Included in property operating and maintenance are expenses for common area
maintenance, utilities, real estate taxes and other reimbursable operating
expenses, which have not been reduced by amounts reimbursable by tenants
pursuant to lease agreements.
Depreciation:
Depreciation expense for buildings is calculated on a straight-line basis
over 39 years. Tenant improvements are typically depreciated over the remaining
life of the tenants lease.
New Accounting Pronouncements:
FASB Statement No. 123 (revised 2005), Share-Based Payment - In December
2004, the Financial Accounting Standards Board ("FASB") released Statement of
Financial Accounting Standards No. 123R, "Share-Based Payment" ("SFAS 123R").
This standard requires issuers to measure the cost of equity-based service
awards based on the grant date fair value of the award. That cost will be
recognized over the period during which an employee is required to provide
service in exchange for the award or the requisite service period (typically the
vesting period). No compensation cost is recognized for equity instruments for
which employees do not render the requisite service. The Company will initially
measure the cost of liability based service awards based on their current fair
value. The fair value of that award will be reimbursed subsequently at each
reporting date through the settlement date. Changes in fair value during the
requisite service period will be recognized as compensation cost over that
period. The grant date fair value of employee share options and similar
instruments will be estimated using option-pricing models adjusted for the
unique characteristics of those instruments. If an equity award is modified
after the grant date, incremental compensation cost will be recognized in an
amout equal to the excess of the fair value of the modified award over the fair
value of the original award immediately before the modification. Companies can
comply with SFAS 123R using one of three transition methods: (1) the modified
prospective method; (2) a variation of the modified prospective method; or (3)
the modified retrospective method. The provisions of this statement are
effective for interim and annual periods beginning after June 15, 2005. The
Company will adopt SFAS 123R as of January 1, 2006, and is still evaluating the
financial impact on the Company's Consolidated Financial Statements.
FIN47, Accounting for Conditional Asset Retirement Obligations - In March
2005, the FASB released FASB Intterpretation No. 47, "Accounting for Conditional
Asset Retirement Obligations", ("FIN47"). FIN47 clarifies that the term
conditional asset retirement obligation as used in SFAS 143. "Accounting for
Asset Retirement Obligations" ("SFAS 143"), as a legal obligation to perform an
asset retirement activity in which the timing and/or method of settlement are
conditional on a future event that may or may not be within the control of the
entity. The obligation to perform the asset retirment activity is unconditional
even though uncertainty exists about the timing and/or method of settlement.
Thus, the timing and/or of settlement may be conditional on a future event.
Accordingly, an entity is required to recognize a liability for the fair value
of a conditional asset retirement obligation if the fair value of the liability
can be reasonably estimated. The fair value of a liability for the conditional
asset retirement obligation should be recognizedd when incurred - generally upon
acquisition, construction, or development and/or through the normal operation of
the asset. Uncertainty about the timing and/or method of settlement of a
conditional asset retirement obligation should be factored into the measurement
of the liability when sufficient information exists. SFAS 143 acknowledges that
in some cases, sufficient information may not be available to reasonably
estimate the fair value of an asset retirement obligation. FIN 47 also clarifies
when an entity would have sufficient information to reasonably estimate the fair
value of an asset retirement obligation. The Company adopted FIN47 during 2005
and does not believe that any asbestos exists in the building that would result
in ARO treatment.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 3 - Investment Securities
Investment securities - held to maturity consist of U.S. Treasury Bills
with original maturities of one year or less and are carried at amortized cost
based upon the Company's intent and ability to hold these investments to
maturity.
Investment securities - available for sale, consist of investments in
equity securities held for an indefinite period and are carried at fair value
with net unrealized gains and losses recorded directly in a separate component
of stockholders' equity.
Investment securities at December 31 consist of the following:
2005 2004
========================================== ===========================================
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....... $ 39,031 $ 39,031 $ 39,034 $ 8,590 $ 8,590 $ 8,586
Available for Sale:
Equity Securities........ 1,729 1,798 1,729 2,112 2,075 2,112
--------- -------- -------- --------- -------- --------
$ 40,760 $ 40,829 $ 40,763 $ 10,702 $ 10,665 $ 10,698
========= ======== ======== ========= ======== ========
The gross unrealized gains (losses) on investment securities at December
31, consist of the following:
(in thousands) 2005 2004
==== ====
Held to Maturity:
Gross unrealized gains (losses)..................................................... $ 3 $ (4)
======= ======
Available for Sale:
Gross unrealized gains.............................................................. $ - $ 41
======= ======
Gross unrealized losses............................................................. $ (69) $ (4)
======= ======
The realized gain on the sale of investment securities available for sale
for the years ended December 31, 2005 and 2004, is as follows:
(in thousands) 2005 2004
==== ====
Net sale proceeds................................................................... $ 548 $17,790
Cost basis.......................................................................... (528) (17,043)
------- -------
Realized gain....................................................................... $ 20 $ 747
======== =======
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
During 2004, the Company purchased and sold a $7 million U.S. Treasury Note
and an $8 million U.S. Treasury Note resulting in gains of $89,000 and $24,000,
respectively which are included in realized gains on investment securities in
the 2004 Consolidated Statement of Operations.
Note 4 - Earnings Per Share
The calculation of basic and diluted earnings per share, including the
effect of dilutive securities, for the years ended December 31, is as follows:
(in thousands, except per share data) 2005 2004 2003
===== ====== ======
Loss from continuing operations............................... $ (5,519) $ (4,696) $ (5,102)
========== ========= =========
Weighted average common shares outstanding ................... 46,234 46,225 46,182
Effect of Dilutive Securities:
Assumed stock option exercise................................. - - -
---------- --------- ---------
Weighted average common shares outstanding assuming dilution.. 46,234 46,225 46,182
========== ========= =========
Loss from continuing operations per common share:
Basic......................................................... $ (0.12) $ (0.10) $ (0.11)
Assuming dilution ............................................ (0.12) (0.10) (0.11)
========== ========= =========
Options to purchase common stock of 1,440,000 shares in 2005, 1,245,000
shares in 2004 and 1,125,000 shares in 2003 were excluded from the computation
of diluted earnings per share because these options were antidilutive in the
computation of earnings per share from continuing operations.
Note 5 - Stockholders' Equity
Authorized capital stock consists of 50,000,000 shares of cumulative
preferred stock, $0.01 par value, and 200,000,000 shares of Common Stock, $0.01
par value.
Changes in the outstanding shares of Common Stock of the Company are as
follows:
2005 2004 2003
===== ====== ======
Balance at beginning of year.................................... 46,233,519 46,158,519 46,208,519
Issuance of common shares....................................... - 75,000 -
Common shares repurchased....................................... - - (50,000)
---------- ---------- ----------
Balance at end of year.......................................... 46,233,519 46,233,519 46,158,519
========== ========== ==========
The Company issued 75,000 previously authorized common shares during
February 2004, in connection with the exercise of an employee stock option at
the exercise price of $0.21 per share.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
At December 31, 2005, December 31, 2004, and December 31, 2003, Common
Stock balances exclude 176,488 treasury shares carried at an average cost of
$3.88 per share, aggregating approximately $685,000.
At December 31, 2005, there were 5,110,000 common shares reserved for
issuance under the Company's stock option and other employee benefit plans.
Stockholder Rights Plan:
On January 29, 1986, the Company's Board of Directors declared a dividend
distribution of one right for each outstanding share of Common Stock of the
Company. The rights, as amended, which entitle the holder to purchase from the
Company a common share at a price of $75.00, are not exercisable until either a
person or group of affiliated persons acquires 25% or more of the Company's
outstanding common shares or upon the commencement or disclosure of an intention
to commence a tender offer or exchange offer for 20% or more of the common
shares. The rights are redeemable by the Company at $0.05 per right at any time
until the earlier of the tenth day following an accumulation of 20% or more of
the Company's shares by a single acquirer or group, or the occurrence of certain
Triggering Events (as defined in the Stockholder Rights Plan). In the event the
rights become exercisable and thereafter, the Company is acquired in a merger or
other business combination, or in certain other circumstances, each right will
entitle the holder to purchase from the surviving corporation, for the exercise
price, Common Stock having a market value of twice the exercise price of the
right. The rights are subject to adjustment to prevent dilution and expire on
February 10, 2011.
Common Stock Repurchase Plan:
The Company's Board of Directors has approved and authorized management to
establish and implement a common stock repurchase plan (the "Repurchase Plan").
The Repurchase Plan is dependent upon favorable business conditions and
acceptable purchase prices for the common stock and allows for the repurchase of
up to 10 million shares of the Company's common stock in the open market. During
June 2003, the Company repurchased 50,000 shares of common stock at a purchase
price of $0.75 per share pursuant to the Repurchase Plan. During February 2006,
the Company repurchased 970,000 shares of common stock from an unaffiliated
party at a purchase price of $0.58 per share pursuant to the Repurchase Plan.
Note 6 - Comprehensive Income (Loss)
Comprehensive income (loss), for the year ended December 31 is composed of
net income (loss) and other comprehensive income (loss) which includes the
change in unrealized gains on investment securities available for sale, and
recognition of additional minimum pension liability as follows:
(in thousands) 2005 2004
================================== ==================================
Minimum Unrealized Accumulated Minimum Unrealized Accumulated
Pension Gains on Other Pension Gains on Other
Liability Investment Comprehensive Liability Investment Comprehensive
Adjustment Securities Income Adjustment Securities Income
========== ========== ============= ========== =========== ============
Balance beginning of period..$ (412) $ 37 $ (375) $ - $ 84 $ 84
Reclassification adjustment for
gains realized in net loss. - (5) (5) - (432) (432)
Change during the period..... (914) (101) (1,015) (412) 385 (27)
-------- ---------- ------------- --------- ----------- ------------
Balance end of period........$ (1,326) $ (69)$ (1,395) $ (412) $ 37 $ (375)
======== ======================== ========= =========== ============
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Note 7 - Pension and Savings Plans
The Company sponsors a non-qualified supplemental retirement plan
("Supplemental Plan") under which one current executive officer of the Company
is currently the sole participant. 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) 2005 2004 2003
==== ==== ====
Service cost of current period................................ $ 1,031 $ 948 $ 870
Interest cost on projected benefit obligation................. 769 710 646
Amortization of unrecognized losses........................... 287 232 206
----------- ------------ -------
$ 2,087 $ 1,890 $ 1,722
============ ============ =======
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) 2005 2004
==== ====
Projected benefit obligation at beginning of year............................... $ 13,382 $ 11,022
Service cost.................................................................... 1,031 948
Interest cost................................................................... 769 710
Actuarial (gain) loss, including effect of change in assumptions................ (587) 702
--------- ----------
Projected benefit obligation at end of year..................................... $ 14,595 $ 13,382
========= ==========
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) 2005 2004
==== ====
Actuarial present value of benefit obligations:
Accumulated benefit obligations, fully vested................................... $ 14,595 $ 11,594
========= ==========
Projected benefit obligation for service rendered to date....................... $ 14,595 $ 13,382
Unrecognized net loss........................................................... (1,326) (2,200)
Accumulated other comprehensive loss............................................ 1,326 412
--------- ----------
Accrued pension costs........................................................... $ 14,595 $ 11,594
========= ==========
Major assumptions:
Discount rate................................................................... 5.50% 5.75%
Rate of increase in future compensation......................................... - 6.0%
========= ===========
The Company's accrued pension liability under the Supplemental Plan as of
December 31, 2005, was increased by an additional minimum liability to reflect
the amount of the unfunded accumulated benefit obligation under the Supplemental
Plan at December 31, 2005. This additional minimum liability was recorded as a
charge to other comprehensive loss in 2005.
The liability for the Supplemental Plan increased to $14,595,000 at
December 31, 2005 from $11,594,000 at December 31, 2004. The increased liability
is the result of additional accrued service vesting, interest cost on the
liability, and the recognition of a minimum pension liability adjustment as a
result of the use of an updated mortality table and changes in certain
assumptions. The Supplemental Plan liability is further affected by changes in
discount rates, mortality, and experience which could be different from those
assumed.
The Personnel Committee of the Board of Directors of the Company (the
"Personnel Committee") had been reviewing the Supplemental Plan and the
Company's related liability, including the desirability of continuing to
maintain and administer the Supplemental Plan, the untying of Mr. Bianco's
future employment with the Company from the timing of his Supplemental Plan
benefit payment(s), the Company's overall financial position, and the
desirability of future accruals under the Supplemental Plan after Mr. Bianco's
current employment contract expires on May 31, 2007. In connection with this
review, the Personnel Committee had been considering various options, including
whether or not to terminate and/or curtail the Supplemental Plan. Mr. Bianco
(the Company's Chairman, President and Chief Executive Officer, and the former
President and Chief Executive Officer of Carteret Savings Bank, FA), is the only
current employee of the Company who participates in the Supplemental Plan and
his Supplemental Plan benefit is fully vested. For purposes of computing his
accrued benefit under the Supplemental Plan, Mr. Bianco had 14.67 years of
credited service as of December 31, 2005, and, assuming continued employment
with the Company, will have 16.08 years of credited service upon the expiration
of his current employment contract with the Company on May 31, 2007. His accrual
percentage under the Supplemental Plan is 4%, in effect from the time of his
initial employment with the Company, and in accordance with the Supplemental
Plan, he has had the entitlement to receive his Supplemental Plan benefit in
either a lump-sum or an annuity upon termination of his employment with the
Company.
During March 2006, the Personnel Committee entered into a new employment
agreement with Mr. Bianco to extend his employment with the Company for an
additional five (5) years beyond May 31, 2007, until May 31, 2012 (the "2007
Employment Agreement"). As part of the 2007 Employment Agreement terms (i) Mr.
Bianco's annual rate of base salary will not increase from his current rate of
base salary during the first three years of the 2007 Employment Agreement; (ii)
Mr. Bianco's service accruals under the Supplemental Plan will cease as of May
31, 2007; (iii) Mr. Bianco's Final Average Earnings (as defined in the
Supplemental Plan) for Supplemental Plan benefit calculation purposes, are
capped as of December 31, 2004; and (iv) Mr. Bianco's bonus will no longer be
linked to recovery efforts in connection with the Company's Supervisory Goodwill
litigation. Instead on or about May 31, 2007, Mr. Bianco will receive a lump-sum
payment of his Supplemental Plan benefit of $16,676,115, which amount was
calculated on the basis of a 5.75% discount rate, a "RP-2000" projected to 2004
mortality table; and 16.08 years of credited service, and the Company and Mr.
Bianco have agreed to a long term incentive bonus formula, at varying
percentages ranging from 5% to 10%, or more, based upon recoveries received by
the Company for its investment in Carteret Savings Bank, through litigation or
otherwise (including the Company's Supervisory Goodwill litigation). The
lump-sum Supplemental Plan benefit payment to Mr. Bianco will be paid to him
from the Company's available financial resources.
The Supplemental Plan has been amended to provide for its automatic
termination immediately following the payment to Mr. Bianco of his lump-sum
benefit under the Supplemental Plan on or about May 31, 2007. In accordance with
the accounting for the Supplemental Plan's scheduled termination on or about May
31, 2007, in accordance with GAAP, the ultimate liability relating to the
anticipated termination of the Supplemental Plan is not reflected in the
financial statements presented herein, as all conditions for the final
termination of the Supplemental Plan have not yet been met. Based on the
actuarially determined accrued pension costs calculated in accordance with GAAP,
the Company will continue to recognize an expense for the Supplemental Plan and
the Supplemental Plan liability will increase through the date on which the
Supplemental Plan is terminated.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The Company sponsors the AmBase 401(k) Savings Plan (the "Savings Plan"),
which is a "Section 401(k) Plan" within the meaning of the Internal Revenue Code
of 1986, as amended (the "Code"). The Savings Plan permits eligible employees to
make contributions of up to 15% of compensation, which are matched by the
Company at a percentage determined annually. The employer match is currently
100% of the employee's compensation 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 compensation reduction contributions. The Company's
matching contributions to the Savings Plan, charged to expense, were $50,000,
$45,000 and $36,000 in 2005, 2004 and 2003, respectively. All contributions are
subject to maximum limitations contained in the Code.
Note 8- Incentive Plans
Under the Company's 1994 Senior Management Incentive Compensation Plan (the
"1994 Plan"), any executive officer of the Company whose compensation is
required to be reported to stockholders under the Securities Exchange Act of
1934 (the "Participants") and who is serving as such at any time during the
fiscal year as to which an award is granted, may receive an award of a cash
bonus ("Bonus"), in an amount determined by the Personnel Committee of the
Company's Board of Directors (the "Committee") and payable from an annual bonus
fund (the "Annual Bonus Pool"). The Committee may award Bonuses under the 1994
Plan to Participants not later than 120 days after the end of each fiscal year
(the "Reference Year").
If the Committee grants a Bonus under the 1994 Plan, the amount of the
Annual Bonus Pool will be an amount equal to the sum of (i) plus (ii), where:
(i) is ten percent (10%) of the amount by which the Company's Total
Stockholders' Equity, as defined, on the last day of a Reference Year increased
over the Company's Total Stockholders' Equity, as defined, on the last day of
the immediately preceding Reference Year; and
(ii) is five percent (5%) of the amount by which the Company's market
value, as defined, on the last day of the Reference Year increased over the
Company's market value on the last day of the immediately preceding Reference
Year.
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. No Bonuses were paid
attributable to the 1994 Plan for 2005, 2004, or 2003.
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
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
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, 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.
The Company's 1985 Stock Option Plan (the "1985 Plan"), provided for the
granting of up to 2,000,000 shares of stock options for the purchase of up to
2,000,000 shares of Common Stock to salaried employees, through May 22, 1995. No
additional stock options are outstanding or can be awarded under the 1985 Plan.
Under the 1985 Plan, there were 75,000 shares under option outstanding and
exercisable as of December 31, 2002 and December 31, 2003 at a weighted average
exercise price of $0.21 per share. In February 2004, the outstanding stock
option, under the 1985 Plan, for 75,000 common shares was exercised.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
Incentive plan activity is summarized as follows:
1993 Stock
(shares in thousands) Incentive Plan
=================================
Weighted
Shares Average
Under Exercise
Option Price
-------- ----------
Outstanding at December 31, 2002................. 1,095 $ 1.27
Expired........................................... (45) 4.02
--------
Outstanding at December 31, 2003............ 1,050 $ 1.15
Expired........................................... (45) 4.02
Granted........................................... 240 0.66
Exercised......................................... - -
--------
Outstanding at December 31, 2004.................. 1,245 $ 1.00
Expired........................................... (45) 4.02
Granted........................................... 240 0.81
--------
Outstanding at December 31, 2005.................. 1,440
========
Options exercisable at:
December 31, 2005............................ 912 $ 1.00
December 31, 2004.......................... 614 1.14
December 31, 2003............................ 285 1.81
========
The following table summarizes information about the Company's stock
options outstanding and exercisable under the 1993 Plan at December 31, 2005, as
follows:
(shares in thousands) Options Outstanding Options Exercisable
============================================== ==============================================
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Life Exercise Exercise
Prices Shares (in years) Price Shares Price
====== ===== ======== ======= ===== =======
$0.60 to $0.90 700 3 0.71 340 0.66
$0.95 15 4 0.95 15 0.95
$1.09 to $1.19 700 3 1.14 532 1.13
$2.56 to $3.65 25 3 3.00 25 3.00
-------- --------
Total 1,440 912
======== ========
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, has been charged to
earnings. The fair value of stock options granted by the Company in 2005 and
2004 used to compute pro forma net income (loss) and earnings per share
disclosures is the estimated fair value at date of grant.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The Black-Scholes option pricing model was used to estimate the fair value
of the options at grant date based on factors as follows:
2005 2004
===== ====
Estimated Dividend yield.............................. 0% 0%
Volatility............................................ 0.44 0.46
Risk free interest rate............................... 4.24% 4.30%
Expected life in years................................ 6 6
Weighted average fair
value at grant date................................. $0.39 $0.32
===== =====
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, 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 a
summary of the pro forma amounts calculated in accordance with SFAS 123, see
Note 2.
Note 9 - Income Taxes
The components of income tax expense for continuing operations for the
years ended December 31 are as follows:
(in thousands) 2005 2004 2003
==== ==== ====
Income tax expense - current state and local.................. $ (95) $ (120) $ (125)
---------- ---------- ---------
Total $ (95) $ (120) $ (125)
========= ========= =========
The components of pretax income (loss) and the difference between income
taxes from continuing operations, computed at the statutory federal rate of 35%
in 2005, 2004 and 2003, and the provision for income taxes from continuing
operations for the years ended December 31 follows:
(in thousands) 2005 2004 2003
==== ==== ====
Loss from continuing operations before income taxes............. $ (5,424) $ (4,576) $ (4,977)
===== ==== ====
Tax (expense) benefit:
Tax at statutory federal rate................................... $ 1,898 $ 1,602 $ 1,742
Accounting loss benefit not recognized.......................... (1,898) (1,602) (1,742)
State income taxes.............................................. (95) (120) (125)
--------- -------- --------
Income tax expense.............................................. $ (95) $ (120) $ (125)
========= ======== ========
The Company expects to utilize net operating loss ("NOL") carryforwards and
alternative minimum tax ("AMT") NOL carryforwards as available to offset taxable
income generated from the sale of Two Soundview as discussed in Part II - Item 8
- - Note 13 to the Company's consolidated financial statements. However, due to
limitations on the amount of NOL carryforwards that may be utilized against
current year taxable income, the income tax provision of $400,000 for
discontinued operations is attributable to a provision for federal alternative
minimum tax of $150,000 and a provision of $250,000 for Connecticut state income
tax amounts for 2004 and 2003, respectively, primarily consist of a minimum tax
on capital to the state of Connecticut.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
As a result of the Office of Thrift Supervision's December 4, 1992
placement of Carteret in receivership, under the management of the Resolution
Trust Corporation ("RTC")/Federal Deposit Insurance Corporation ("FDIC"), and
then proposed Treasury Reg. ss.1.597-4(g), the Company had previously filed its
1992 and subsequent federal income tax returns with Carteret disaffiliated from
the Company's consolidated federal income tax return. Based upon the impact of
Treasury Reg. ss.1.597-4(g), which was issued in final form on December 20,
1995, a continuing review of the Company's tax basis in Carteret, and the impact
of prior year tax return adjustments on the Company's 1992 federal income tax
return as filed, the Company decided not to make an election pursuant to final
Treasury Reg. ss.1.597-4(g) to disaffiliate Carteret from the Company's
consolidated federal income tax return effective as of December 4, 1992 (the
"Election Decision").
The Company has made numerous requests to the RTC/FDIC for tax information
pertaining to Carteret and the resulting successor institution, Carteret Federal
Savings Bank ("Carteret FSB"); however all of the information still has not been
received. Based on the Company's Election Decision, described above, and the
receipt of some of the requested information from the RTC/FDIC, the Company has
amended its 1992 consolidated federal income tax return to include the federal
income tax effects of Carteret and Carteret FSB (the "1992 Amended Return"). The
Company is still in the process of amending its consolidated federal income tax
returns for 1993 and subsequent years.
The Company anticipates that, as a result of filing a consolidated federal
income tax return with Carteret FSB, a total of approximately $170 million of
tax NOL carryforwards will be generated from the Company's tax basis in
Carteret/Carteret FSB as tax losses are incurred by Carteret FSB of which $158
million are still available for future use. Based on the Company's filing of the
1992 Amended Return , approximately $56 million of NOL carryforwards are
generated for tax year 1992 which expire in 2007, with the remaining
approximately $102 million of NOL carryforwards to be generated, expiring no
earlier than 2008. These NOL carryforwards would be available to offset future
taxable income, in addition to the NOL carryforwards as further detailed below.
The Company can give no assurances with regard to the 1992 Amended Return or
amended returns for subsequent years, or the final amount or expiration of NOL
carryforwards ultimately generated from the Company's tax basis in Carteret.
In March 2000, the Company filed several carryback claims and amendments to
previously filed carryback claims with the IRS (the "Carryback Claims") seeking
refunds from the IRS of alternative minimum tax and other federal income taxes
paid by the Company in prior years plus applicable IRS interest, based on the
filing of the 1992 Amended Return. In April 2003, IRS examiners issued a letter
to the Company proposing to disallow the Carryback Claims. The Company sought
administrative review of the letter by protesting to the Appeals Division of the
IRS. In February 2005, IRS Appeals officials completed their review of the
Carryback Claims, and disallowed them. The Company is currently considering
whether to file suit for the tax refunds it seeks, plus interest, with respect
to the Carryback Claims. Even if the Company files suit, the Company can give no
assurances as to the final amount of refunds, if any, or when they might be
[received.
AMBASE CORPORATION AND SUBSIDIAIRES
Notes to Consolidated Financial Statements (continued)
Based upon the Company's federal income tax returns as filed from 1993 to
2004 (subject to IRS audit adjustments), excluding the NOL carryforwards
expected to be utilized in 2005 and excluding the NOL carryforwards generated
from the Company's tax basis in Carteret/Carteret FSB, as noted above, at
December 31, 2005, the Company has NOL carryforwards available to reduce future
federal taxable income, which expire if unused, as follows:
2009 2,600,000
2010 5,300,000
2012 1,100,000
2018 5,400,000
2019 4,000,000
2020 2,600,000
2021 4,000,000
2022 3,200,000
2023 1,800,000
2024 700,000
------------
$30,700,000
===========
The Company's federal income tax returns for the years subsequent to 1992
have not been reviewed by the IRS. The utilization of certain carryforwards is
subject to limitations under U.S. federal income tax laws. In addition, the
Company has approximately $21 million of AMT credit carryforwards ("AMT
Credits"), which are not subject to expiration. Based on the filing of the
Carryback Claims, as further discussed above, the Company would seek to realize
approximately $8 million of the $21 million of AMT Credits.
The Company has calculated a net deferred tax asset of $32 million and $34
million as of December 31, 2005 and 2004, respectively, arising primarily from
NOL's and alternative minimum tax credits (not including the anticipated tax
effects of the NOL's expected to be generated from the Company's tax basis in
Carteret, resulting from the Election Decision, as more fully described above).
A valuation allowance has been established for the entire net deferred tax
asset, as management, at the current time, has no basis to conclude that
realization is more likely than not.
Note 10 - Legal Proceedings
The Company is or has been a party in a number of lawsuits or proceedings,
including the following:
(a) Litigation with SDG, Inc. In September 2000, the Company filed a
lawsuit in the United States District Court for the District of Connecticut
(Case No. 3:00CV1694 (DJS)) (the "Court") against SDG Inc. ("SDG"), and certain
of its officers and directors to pursue various claims against such parties,
including, but not limited to, the claims that SDG failed to honor a binding
contract which granted the Company the right to act as the exclusive investment
banking/financial advisor to SDG, and its subsidiaries and affiliates. SDG filed
various counterclaims. A trial in this matter was completed during May 2003, and
all parties submitted post trial briefs during August 2003. On August 3, 2005,
the Court issued its decision denying all the Company's claims and the
defendants' counterclaims. The Company filed a Notice of Appeal with the United
States of Appeals for the Second Circuit on September 6, 2005. Thereafter, the
parties entered into successful settlement negotiations. On March 31, 2006, the
parties will file a stipulation with the Court withdrawing the appeal. The
Company remains a shareholder in SDG and AMDG and will continue to monitor the
status of SDG and its subsidiary, AMDG, Inc.
AMBASE CORPORATION AND SUBSIDIAIRES
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" or the "Court"), based upon the
impact of the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") on the Company's investment in Carteret Savings Bank
("Carteret"). Approximately 120 other similar so-called "supervisory goodwill"
cases, were commenced by other financial institutions and/or their shareholders,
many are still pending in the Court of Federal Claims. Three of these cases,
Winstar Corp. v. United States, Glendale Federal Bank, FSB v. United States, and
Statesman Savings Holding Corp. v. United States (the "Consolidated Cases"),
which involve many of the same issues raised in the Company's suit, were
appealed to the United States Supreme Court (the "Supreme Court"). On July 1,
1996, the Supreme Court issued a decision in the Consolidated Cases. The Supreme
Court's decision affirmed the lower Court's grant of summary judgment in favor
of the plaintiffs on the issue of liability and remanded the cases for a
determination of damages. Although the decision in the Consolidated Cases is
beneficial to the Company's case, it is not necessarily indicative of the
ultimate outcome of the Company's action.
On September 18, 1996, the Court of Federal Claims entered an Omnibus Case
Management Order that will govern further proceedings in the Company's action
and most of the other so-called "Winstar-related" cases. On March 14, 1997, the
Court entered an order permitting the Federal Deposit Insurance Company ("FDIC")
to intervene as an additional plaintiff in forty-three cases, including the
Company's case, but not allowing the FDIC to be substituted as the sole
plaintiff in those cases.
On March 20, 1998, the FDIC filed a motion for partial summary judgment
against the United States on certain liability issues, and the Company filed a
memorandum in support of that motion. Fact discovery for the Company was
completed November 30,1999 pursuant to an extension of time granted by the
Court. On September 9, 1999, the Company filed a Motion For Partial Summary
Judgment On Liability under a Fifth Amendment Takings claim theory of recovery.
On November 24, 1999, the FDIC, as successor to the rights of Carteret and as
Plaintiff-Intervenor in the case, filed a response brief opposing the Company's
Motion. On December 6, 1999, the Department of Justice (the "DOJ") (on behalf of
the United States) filed a brief opposing the Company's Motion For Partial
Summary Judgment On Liability and Cross-Moved for Summary Judgment On the
Company's Takings claim. On January 25, 2000, the Company responded to the DOJ's
brief and the FDIC's brief by filing a Brief (i) In Reply To Defendant's
Opposition To Plaintiffs' Motion For Partial Summary Judgment, (ii) In
Opposition To Defendant's Cross-Motion For Summary Judgment, and (iii) In Reply
To FDIC's Response To Plaintiffs' Motion For Partial Summary Judgment. On
February 22, 2000 the DOJ filed a brief in Reply To Plaintiffs' Opposition To
Defendant's Cross-Motion For Summary Judgment.
On October 2, 2000, Senior Judge Loren Smith of the Court of Federal Claims
heard oral arguments in the Company's Supervisory Goodwill case against the
United States government. The Court heard arguments both as to the contractual
liability of the United States to Carteret Savings Bank, and as to the Company's
claim against the United States under the Takings Clause of the Fifth Amendment.
On August 25, 2003, the Court of Federal Claims issued a decision in which
it (i) ruled that the Government had entered into and breached its supervisory
goodwill contracts with the Company's wholly-owned subsidiary, Carteret; (ii)
rejected the Company's claim that it was entitled to recover damages directly
from the Government under the Takings Clause for the loss of Carteret; and (iii)
rejected the Company's claim that the Government had "illegally exacted" $62.5
million that the Company paid into Carteret subsequent to the Government's
breach of the Goodwill contracts. Specifically, the Court held that the Company
could not recover damages under the Takings Clause because it could be restored
to the position it was in before the breach through Carteret's breach of
contract action.
On September 17, 2003, the Company filed a Motion to Dismiss The FDIC and
to Define The Appropriate Measure of Carteret's Contract Damages. On September
30, 2003, the FDIC, as plaintiff-intervenor in the case, and the United States,
as defendant in the case, each filed a separate response to the Company's
motion. The Company argued in its motion that because Carteret would not have
been seized but for the Government's breach of contract, no receivership deficit
would have been incurred. Accordingly, the Company argued that Carteret should
be entitled to recover contract damages that include both: (i) the full amount
of the receivership deficit, as an offset to the deficit and (ii) the full
amount of the positive value it would have had but for the breach.
Alternatively, the Company argued that, if Carteret is not entitled to recover
both these amounts, or if any award must be offset by the amount of the
receivership deficit, the Company should be entitled to demonstrate why the
receivership deficit has been erroneously overstated. The Department of Justice
responded with the theories that Carteret would have failed even if Supervisory
Goodwill was counted. The FDIC, who is both the receiver for the estate of
Carteret (and hence its legal advocate in court) as well as a creditor of the
estate, took the position that the Court of Federal Claims has no jurisdiction
AMBASE CORPORATION AND SUBSIDIAIRES
Notes to Consolidated Financial Statements (continued)
to review the accuracy, validity, or amount of the Carteret receivership
deficit reported by the FDIC. That receivership deficit consists of the FDIC's
subrogated claim against the thrift, interest, taxes, and administrative
expenses charged by the FDIC to the thrift. Because the receivership deficit
continues to accrue interest, it grows on a daily basis. The FDIC has
represented to the Court of Federal Claims that is does not expect to present
any expert testimony articulating a theory of damages for Carteret that would
exceed the current size of the receivership. While the failure to seek damages
in excess of the receivership deficit has previously been held to be cause for
dismissal for lack of standing, the FDIC has stated that it believes it still
has standing in this case based upon the damage theories it expects the Company
to present.
On October 1, 2003, the Court held a telephonic status conference pursuant
to an order set forth in the August 25, 2003 opinion. Pursuant to that status
conference, the Court ordered that through their additional briefing on the
Company's Motion to Dismiss the FDIC and to define the appropriate measure of
Carteret's contract damages (i.e., through the Company's reply brief and the
surreply brief granted to the FDIC and the United States), the parties should
address the question of, "whether the Court has the power to review the amount
of the receivership deficit as administered by the FDIC." In an order dated
October 16, 2003, the Court modified the briefing schedule such that the Company
filed its reply brief as required on October 31, 2003, and the surreply brief of
the FDIC and the United States were filed as required in November, 2003. The
Court held oral argument on this issue on November 20, 2003. The Department of
Justice and the FDIC filed briefs arguing that (1) the Court of Federal Claims
had no authority to scrutinize the validity of the receivership deficit reported
by the FDIC and (2) the Court should dismiss AmBase's remaining damages claims
because they were allegedly waived. On August 31, 2004, the Court denied the
Company's Motion to Dismiss the FDIC, but granted the Company's Motion to Define
the Measure of Carteret's Contract Damages to the extent it requested the Court
to consider the size and value of the FDIC's receivership deficit when
calculating damages. The Court subsequently conducted a status conference on
October 4, 2004, and ordered the Company to submit a proposed litigation
time-line to the Court by October 22, 2004 which was timely submitted. The Court
ordered the United States and the FDIC to respond to the Company's proposed
litigation time-line by November 5, 2004 which was timely submitted. A status
conference was held on January 11, 2005. On January 12, 2005, the Court ordered
that pursuant to the Court's order from the bench, the Defendant's Motion for
Reconsideration of the August 31, 2004 Ruling, and, in the Alternative, to
dismiss the Stockholder Derivative Claim and the Complaint-in-Intervention is
denied. The Court further ordered that this matter be stayed for 30 days for the
Defendant and/or Plaintiff-Intervenor to consider filing a Request for
Certification for Interlocutory Appeal. The Court held a telephonic status
conference on February 11, 2005 at which time the Court ordered that fact
discovery was to resume on February 14, 2005 and would continue for at least
three (3) months. The Court further scheduled a telephonic status conference to
be held on Thursday, May 12, 2005 to discuss the need for further discovery.
On January 12, 2005, Judge Smith denied the government's motion to dismiss
the Company's remaining claims arising out of damages for breach of contract. On
March 15, 2005, the United States Department of Justice and the FDIC each filed
motions requesting that Judge Smith certify for immediate appeal his ruling that
the Company is entitled to challenge the validity of the receivership deficit.
The Company's filed its reply to these motions on March 29, 2005. In April 2005,
Judge Smith heard oral argument on the United States Department of Justice and
the FDIC motions requesting that Judge Smith certify for immediate appeal his
ruling that the Company is entitled to challenge the validity of the
receivership deficit. Because Judge Smith's ruling on the receivership deficit
issue is not a final order, both Judge Smith and the Court of Appeals for the
Federal Circuit would have to agree to an appeal of that issue at this time.
Following the April 2005 oral argument, Judge Smith entered an order, on April
25, 2005, staying resolution of the motions to certify an interlocutory appeal
pending the holding of a "show cause" hearing. Judge Smith indicated at the oral
argument that the purpose of the show cause hearing was to allow the Company to
outline the evidence and arguments it was prepared to offer in order to
challenge the validity and size of the receivership deficit. Judge Smith
directed the parties to attempt to reach agreement regarding a schedule for the
completion of discovery on receivership deficit issues, and he directed the
parties to submit to the Court such an agreed proposed discovery schedule, or,
if the parties are unable to reach agreement, separate proposed schedules for
discovery, in early May 2005. Judge Smith further encouraged the parties to
discuss the procedures and schedule for the show cause hearing, and to provide
the Court with a proposed order on such matters.
AMBASE CORPORATION AND SUBSIDIAIRES
Notes to Consolidated Financial Statements (continued)
In accordance with the Court's direction, the parties agreed upon a
schedule for the completion of fact discovery and procedures for the show cause
proceeding. In accordance with the parties' agreement, Judge Smith entered an
order on May 23, 2005, providing that fact discovery would be completed within
45 days of the completion of document production by the Government. The May 23,
2005 order further provides that (i) 45 days after the close of discovery, the
Company is to file a statement of issues summarizing the respects in which the
receivership books allegedly overstate or misstate the receivership deficit;
(ii) 45 days after the filing of the Company's statement of issues, the United
States and the FDIC are to file responses; and (iii) 15 days after the filing of
such responses, the Company is to file a reply. In the event the Company
determines that it will rely upon expert testimony regarding the parties and
depositions of such experts.
In May and June of 2005, the Government provided the Company with access to
Carteret's documents and documents relating to the management of the
receivership. The Company selected approximately 3 million pages of documents to
be imaged at the Government's expense. On September 15, 2005, a status
conference was held before Judge Smith. The Government indicated that it would
complete production of all the images of the selected materials by the end of
September 2005. Additionally, at the status conference, all parties agreed that
the schedule previously set forth by the Court's May 23, 2005 order should be
changed in one respect: the Company will be given 75 days from the completion of
the document production to complete discovery. In all other respects, the
schedule set forth by the May 23, 2005 order will remain in effect. The Court
issued an order on September 26, 2005 memorializing this agreement. On January
11, 2006, the Court held a status conference. At that time, the Court indicated
that the document production would be deemed complete as of that date. The
Court's order of January 13, 2006, memorialized this ruling. Accordingly, fact
discovery will be complete in April 2006, and the statement of issues will be
due in May of 2006. A status conference has been set for April 11, 2006, to
discuss further proceedings. No assurance can be given regarding the ultimate
outcome of the litigation.
Both the Court of Federal Claims and the Court of Appeals for the Federal
Circuit have issued numerous decisions in cases that involve claims against the
United States based upon its breach of its contracts with savings and loan
institutions through its 1989 enactment of FIRREA. In particular, the Federal
Circuit has issued decisions rejecting Takings Clause claims advanced by
shareholders of failed thrifts. Castle v. United States, 301F.3d 1328 (Fed. Cir.
2002); Bailey v. United States, 341 F. 3d 1342 (Fed. Cir 2003) petition for
certiorari which was filed January 26, 2004. In April 2004, the Company filed an
amicus brief in support of the petition for certiorari filed by Bailey. In June
2004, the United States Supreme Court denied the petition for certiorari filed
by Bailey. The Court of Claims decision in the Company's case, as well as other
decisions in Winstar-related cases, are publicly available and may be relevant
to the Supervisory Goodwill Company's claims, but are not necessarily indicative
of the ultimate outcome of the Company's actions.
Note 11 - 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 and investment securities available for sale are
based on current market quotations. The carrying value of applicable other
liabilities approximates their fair value. See note 13 herein for information
regarding the Company's sale of Two Soundview in July 2005.
AMBASE CORPORATION AND SUBSIDIAIRES
Notes to Consolidated Financial Statements (continued)
Note 12 - Property Owned
The Company owns one commercial office building in Greenwich, Connecticut
that contains 14,500 square feet. The Company utilizes a small portion of the
office space for its executive offices with the remaining square footage
available for lease to unaffiliated third parties. Depreciation expense is
recorded on a straight-line basis over 39 years. The building is carried at
cost, net of accumulated depreciation of $232,000 at December 31, 2005. At
December 31, 2004, building and improvements are net of $763,000 of accumulated
depreciation, which includes $582,000 of accumulated depreciation for Two
Soundview, which was sold in July 2005, as further discussed in note 13 herein.
At December 31, 2004, other liabilities in the Consolidated Balance Sheet
include $305,000 of tenant security deposits relating to Two Soundview. See note
13 herein for information regarding the Company's sale of Two Soundview in July
2005.
The property is leased to tenants under operating leases with varying
terms. Future minimum rentals receivable from tenants under non-cancelable
operating leases, excluding tenant reimbursements of operating expenses and real
estate tax escalations, are approximately as follows:
December 31
=============
2006............................................... $ 83,875
Note 13 - Discontinued Operations
In May 2005, the Company entered into an agreement to sell Two Soundview,
originally purchased in December 2002, to Ceruzzi Holdings, LLC, an unaffiliated
third party. In July 2005, the Company completed the sale of Two Soundview. The
sale price was $28,000,000 less normal real estate closing adjustments. As a
result of the sale of Two Soundview, the results of operations of Two Soundview
have been designated as discontinued operations, and the Consolidated Statements
of Operations for the periods presented herein have been 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, in
accordance with SFAS 144. A gain from the sale, of $10,298,000, is reflected in
the Company's financial statements for the year ending December 31, 2005.
Net gain on sale of real estate is as follows:
(in thousands)
Gross sales price............................................................. $28,000
Less: Transactions costs..................................................... (558)
-------
Net cash proceeds............................................................. 27,442
Less:
Real estate carrying value (net of accumulated depreciation of $722,000).. (16,588)
Other assets.............................................................. (556)
-------
Net gain on sale of real estate............................................... $10,298
=======
Transaction costs above include broker commissions, transfer taxes, and
legal and other fees. Other assets above includes $519,000 of deferred rental
revenue resulting from the recognition of rental revenue on a straight-line
basis over the terms of tenant leases versus contractual lease payment terms,
and $37,000 of real estate commissions previously capitalized. At December 31,
2004, other liabilities in the Consolidated Balance Sheet include $305,000 of
tenant security deposits relating to Two Soundview.
Income from discontinued operations, as summarized below, for the twelve
months periods ended December 31, 2005, reflects the results of operations of
Two Soundview and the net gain realized upon disposition.
AMBASE CORPORATION AND SUBSIDIAIRES
Notes to Consolidated Financial Statements (continued)
Income from discontinued operations is as follows:
(in thousands) 2005 2004 2003
Revenues: ==== ==== ====
Rental income............................................. $ 1,158 $ 2,053 $ 2,258
Operating expenses:
Professional and outside services......................... 25 47 44
Property operating and maintenance........................ 231 357 372
Depreciation.............................................. 140 280 279
Insurance................................................. 11 17 14
Other operating........................................... 2 7 6
-------- ------- --------
409 708 715
-------- ------- --------
Income from operation of discontinued property............ 749 1,345 1,543
Gain on disposition....................................... 10,298 - -
Income tax expense on discontinued operations............. (400) - -
-------- ------- --------
Income from discontinued operations....................... $ 10,647 $ 1,345 $ 1,543
======== ======= ========
The Company expects to utilize NOL carryforwards and AMT NOL carryforwards
as available to offset taxable income generated from sale of Two Soundview as
discussed in Note 9 to the Company's consolidated financial statements. However,
dut to limitations on the amount of NOL carryforwards that may be utilized
against current year taxable income, the income tax provision of $400,00 for
discontinued operations is attributable to provision for federal alternative
minimum tax of $150,000 and a provision of $250,000 for Connecticut state taxes.
Note 14 - Quarterly Financial Information (unaudited)
Summarized quarterly financial information follows:
First Second Third Fourth Full
(in thousands, except per share data) Quarter Quarter Quarter Quarter Year
2005: ===== ===== ===== ===== =====
Revenues................................ $ 43 $ 43 $ 41 $ 43 $ 170
Operating expenses...................... 1,823 1,791 1,621 1,413 6,648
Operating loss.......................... (1,780) (1,748) (1,580) (1,370) (6,478)
======== ========= ======= ======== =======
Loss from continuing operations......... $ (1,665) $ (1,632) $(1,427) $ (795) $(5,519)
Income (loss) from discontinued
operations (a)(b) 341 345 10,361 (400) 10,647
-------- --------- ------- -------- -------
Net income (loss) (a)................... $ (1,324) $ (1,287) $ 8,934 $ (1,195) $ 5,128
======== ========= ======= ======== =======
Per common share data:
Loss from continuing operations......... $ (0.03) $ (0.04) $ (0.03) $ (0.02) $(0.12)
Income (loss) from discontinued
operations (a)..................... - 0.01 0.22 (0.01) 0.23
-------- --------- ------- -------- ------
Net income (loss) (a)................... $ (0.03) $ (0.03) $ 0.19 $ (0.03) $ 0.11
2004: ======== ======== ======= ======== ======
Revenues................................ $ 42 $ 48 $ 49 $ 37 $ 176
Operating expenses...................... 1,287 1,311 1,322 2,084 6,004
Operating loss.......................... (1,245) (1,263) (1,273) (2,047) (5,828)
======== ========= ======= ======== =======
Loss from continuing operations......... $ (1,053) $ (941) $(1,038) $ (1,664) $(4,696)
Income from discontinued operations..... 323 327 344 351 1,345
-------- --------- ------- -------- ------
Net income (loss)....................... $ (730) $ (614) $ (694) $ (1,313) $(3,351)
======== ======== ======= ======== ======
Per common share data:
Loss from continuing operations......... $ (0.02) $ (0.02) $ (0.02) $ (0.04) $ (0.10)
Income from discontinued operations..... - 0.01 0.01 0.01 0.03
-------- --------- ------- -------- ------
Net income (loss)....................... $ (0.02) $ (0.01) $ (0.01) $ (0.03) $ (0.07)
======== ======== ======= ======== =======
(a) Results for the third quarter and full year 2005, includes a gain of
$10,298,000 from the sale of real estate.
(b) The loss from discontinued operations for the fourth quarter 2005, is
attributable to an additional tax provision of $250,000 for discontinued
operations and reclassification of $150,000 of the tax provision for the nine
months ended September 30, 2005 from continuing operations to discontinued
operations.
Note 15 - Subsequent Events
During February 2006, the Company repurchased 970,000 shares of common
stock from an unaffiliated party at a purchase price of $0.58 per share pursuant
to the Company's Repurchase Plan.
As more fully discussed in Note 7 herein, during March 2006, the Personnel
Committee entered into a new employment agreement with Mr. Bianco to extend his
employment with the Company for an additional five (5) years beyond May 31,
2007, until May 31, 2012 (the "2007 Employment Agreement"). As part of the 2007
Employment Agreement terms (i) Mr. Bianco's annual rate of base salary will not
increase from his current rate of base salary during the first three years of
the 2007 Employment Agreement; (ii) Mr. Bianco's service accruals under the
Supplemental Plan will cease as of May 31, 2007; (iii) Mr. Bianco's Final
Average Earnings (as defined in the Supplemental Plan) for Supplemental Plan
benefit calculation purposes, are capped as of December 31, 2004; and (iv) Mr.
Bianco's bonus will no longer be linked to recovery efforts in connection with
the Company's Supervisory Goodwill litigation. Instead on or about May 31, 2007,
Mr. Bianco will receive a lump-sum payment of his Supplemental Plan benefit of
$16,676,115, which amount was calculated on the basis of a 5.75% discount rate,
a "RP-2000" projected to 2004 mortality table; and 16.08 years of credited
service, and the Company and Mr. Bianco have agreed to a long term incentive
bonus formula, at varying percentages ranging from 5% to 10%, or more, based
upon recoveries received by the Company for its investment in Carteret Savings
Bank, through litigation or otherwise (including the Company's Supervisory
Goodwill litigation). The lump-sum Supplemental Plan benefit payment to Mr.
Bianco will be paid to him from the Company's available financial resources.
The Supplemental Plan has been amended to provide for its automatic
termination immediately following the payment to Mr. Bianco of his Supplemental
Plan lump-sum benefit on or about May 31, 2007. In accordance with the
accounting for the Supplemental Plan's scheduled termination on or about May 31,
2007, in accordance with GAAP, the ultimate liability relating to the
anticipated termination of the Supplemental Plan is not reflected in the
financial statements presented herein, as all conditions for the final
termination of the Supplemental Plan have not yet been met. Based on the
actuarially determined accrued pension costs calculated in accordance with GAAP,
the Company will continue to recognize an expense for the Supplemental Plan and
the Supplemental Plan liability will increase through the date on which the
Supplemental Plan is terminated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Company's Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure based on the definition of "disclosure
controls and procedures" in Rule 13a-15(c). In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
As of December 31, 2005, the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and the Company's Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based on the foregoing, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning executive officers required by this item is set
forth following Item 4 of Part I of this report under the caption "Executive
Officers of the Registrant", pursuant to General Instruction G to Form 10-K. For
the information required to be set forth by the Company in response to this item
concerning directors of the Company, see the Company's definitive Proxy
Statement for its Annual Meeting of Shareholders to be held on May 19, 2006,
under the captions "Proposal No. 1 - Election of Director" and "Information
Concerning the Board and its Committees", which is incorporated herein by
reference, which the Company intends to file with the Securities and Exchange
Commission not later than 120 days after the close of its 2005 fiscal year.
Code of Ethics
We have adopted a Code of Ethics that applies to our Chief Executive
Officer, Chief Financial Officer and other senior officers. A copy of the Code
of Ethics was filed with the SEC as Exhibit 14 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2003.
ITEM 11. EXECUTIVE COMPENSATION
For the information required to be set forth by the Company in response to
this item, see the Company's definitive Proxy Statement for its Annual Meeting
of Shareholders to be held on May 19, 2006, under the captions "Executive
Compensation" and "Employment Contracts", which are 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 2005 fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table summarizes information about securities authorized for
issuance under equity compensation plans of the Company at December 31, 2005 as
follows:
Shares to be issued Weighted average
upon exercise of exercise price of Shares available for
outstanding options outstanding options future issuance
=================== =================== ====================
Equity Compensation
Plans approved
by stockholders 1,440,000 $ 0.96 3,560,000
Equity Compensation
Plan not approved
By stockholders - - 110,000
----------------- ------------------- --------------------
Total 1,440,000 $ 0.96 3,670,000
================= =================== ====================
Plan not approved by stockholders
The Company has 110,000 shares of common stock reserved for issuance under
the AmBase Corporation Stock Bonus Plan (the "Stock Bonus Plan"), which was
approved by the Board of Directors of the Company in 1989. The purpose of the
Stock Bonus Plan is to encourage individual performance and to reward eligible
employees whose performance, special achievements, longevity of service to the
Company or suggestions make a significant improvement or contribution to the
growth and profitability of the Company. The Stock Bonus Plan is administered by
the Personnel Committee of the Board of Directors. Members of the Personnel
Committee are not eligible for an award pursuant to the Stock Bonus Plan. The
Company's President may also designate eligible employees to receive awards,
which are not to be in excess of 100 shares of Common Stock. No fees or expenses
of any kind are to be charged to a participant. Any employee of the Company,
except for certain officers or directors of the Company, are eligible to receive
shares under the Stock Bonus Plan. Distributions of shares may be made from
authorized but unissued shares, treasury shares or shares purchased on the open
market.
For other information required to be set forth by the Company in response
to this item, see the Company's definitive Proxy Statement for its Annual
Meeting of Shareholders to be held on May 19, 2006, 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 2005 fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information concerning Principal Accountant Fees and Services is set
forth by the Company under the heading "Proposal 2 - Appointment of Independent
Registered Public Accounting Firm" in the Company's definitive Proxy Statement
for its Annual Meeting of Shareholders to be held on May 19, 2006, 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 2005 fiscal year.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Documents filed as a part of this report:
1. Index to Financial Statements: Page
AmBase Corporation and Subsidiaries:
Report of Independent Registered Public Accounting Firm...........................................15
Consolidated Statements of Operations.............................................................16
Consolidated Balance Sheets.......................................................................17
Consolidated Statements of Changes in Stockholders' Equity........................................18
Consolidated Statements of Comprehensive Income (Loss) ...........................................18
Consolidated Statements of Cash Flows.............................................................19
Notes to Consolidated Financial Statements........................................................20
2. Index to Financial Statements Schedules:
Schedule III - Real Estate and Accumulated Depreciation
3. Exhibits:
3A. Restated Certificate of Incorporation of AmBase Corporation (as amended
through February 12, 1991) (incorporated by reference to Exhibit 3A to the
Company's Annual Report on Form 10-K for the year ended December 31, 1990).
3B. By-Laws of AmBase Corporation (as amended through March 15, 1996),
(incorporated by reference to Exhibit 3B to the Company's Annual Report on Form
10-K for the year ended December 31, 1995).
4. Rights Agreement dated as of February 10, 1986 between the Company and
American Stock Transfer and Trust Co. (as amended March 24, 1989, November 20,
1990, February 12, 1991, October 15, 1993, February 1, 1996 and November 1, 2000
and November 9, 2005), (incorporated by reference to Exhibit 4 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1990, the Company's
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1993,
the Company's Annual Report on Form 10-K for the year ended December 31, 1995,
the Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2000), and the Company's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2005, respectively).
10A. 1985 Stock Option Plan for Key Employees of AmBase and its
Subsidiaries (incorporated by reference to Exhibit 10B to the Company's Annual
Report on Form 10-K for the year ended December 31, 1989).
10B. 1993 Stock Incentive Plan as amended (incorporated by reference to
Exhibit A to the Company's Proxy Statement for the Annual Meeting of
Stockholders held on May 28, 1998).
10C. 1994 Senior Management Incentive Compensation Plan (incorporated by
reference to Exhibit A to the Company's Proxy Statement for the Annual Meeting
of Stockholders held on May 27, 1994).
10D. AmBase Officers and Key Employees Stock Purchase and Loan Plan
(incorporated by reference to Exhibit 10E to the Company's Annual Report on Form
10-K for the year ended December 31, 1989).
10E. AmBase Supplemental Retirement Plan (incorporated by reference to
Exhibit 10C to the Company's Annual Report on Form 10-K for the year ended
December 31, 1989) and as amended March 30, 2006, included herein.
10F. Assignment and Assumption Agreement dated as of August 30, 1985,
between the Company and City Investing Company (incorporated by reference to
Exhibit 28 to the Company's Current Report on Form 8-K dated September 12,
1985).
10G. Employment Agreement dated as of June 1, 1991 between Richard A.
Bianco and the Company, as amended December 30, 1992 (incorporated by reference
to Exhibit 10G to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992), as amended February 24, 1997, (incorporated by reference to
Exhibit 10G to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996), as amended March 6, 2001, (incorporated by reference to
Exhibit 10G to the Company's Annual Report on Form 10-K for the year ended
December 31, 2000), and as amended December 16, 2001, (incorporated by reference
to Exhibit 10G to the Company's Annual Report on Form 10-K for the year ending
December 31, 2001).
10H. Employment Agreement dated as of March 30, 2006 between Richard A.
Bianco and the Company, for employment from June 1, 2007 through May 31, 2012,
included herein.
14. AmBase Corporation - Code of Ethics as adopted by Board of Directors
(incorporated by reference to Exhibit 14 to the Company's Annual Report on Form
10-K for the year ending December 31, 2003).
21. Subsidiaries of the Registrant.
23. Consent of Independent Registered Public Accounting Firm.
31.1 Rule 13a-14(a) Certification of Chief Executive Officer Pursuant to
Rule 13a-14.
31.2 Rule 13a-14(a) Certification of Chief Financial Officer Pursuant to
Rule 13a-14.
32.1 Section 1350 Certification of Chief Executive Officer pursuant to Rule
18 U.S.C. Section 1350.
32.2 Section 1350 Certification of Chief Financial Officer pursuant to Rule
18 U.S.C. Section 1350.
Exhibits, except as otherwise indicated above, are filed herewith.
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.
AMBASE CORPORATION
/s/ RICHARD A. BIANCO
Chairman, President and Chief Executive
Officer (Principal Executive Officer)
Date: March 31, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities on the dates indicated.
/s/ RICHARD A. BIANCO /s/ JOHN P. FERRARA
Chairman, President, Vice President, Chief Financial
Chief Executive Officer and Director Officer and Controller
Date: March 31, 2006 (Principal Financial and Accounting
Officer)
Date: March 31, 2006
/s/ ROBERT E. LONG /s/ SALVATORE TRANI
Director Director
Date: March 31, 2006 Date: March 31, 2006
/s/ PHILIP M. HALPERN
Director
Date: March 31, 2006
AMBASE CORPORATION AND SUBSIDIARIES
SCHEDULE III. REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2005
(dollars in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------
Cost Capitalized
Subsequent to Gross Amount at which Carried at
Initial Cost to Company Acquisition the Close of the Period
======================= ================ ================================
Building & Building &
Description Encumbrances Land Improvements Improvements Land Improvements Total
=========== =========== ====== ============ ============ ===== ============ =======
Office Building:
Greenwich, CT $ - $ 554 $ 1,880 $ 20 $ 554 $ 1,900 $ 2,454
----------- ------ ----------- ------------ ----- ------------ -------
Total........... $ - $ 554 $ 1,880 $ 20 $ 554 $ 1,900 $ 2,454
=========== ====== =========== ============ ===== ============ =======
[Additional columns below]
[Continued from above table, first column(s) repeated]
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I
- -------- -------- -------- -------- -------------------------
Accumulated Life on Which Depreciated
Description Depreciation Date Constructed Date Acquired Latest Income Statement
=========== ============ ================ ============= ==========================
Office Building:
Greenwich, CT $ 232 1970 Apr.-01 39 years
------------ ================ ============= ==========================
Total........... $ 232
============
[a] Reconciliation of total real estate carrying value is as follows:
Year Ended Year Ended Year Ended
December 31, 2005 December 31,2004 December 31, 2003
================= ================ =================
Balance at beginning of year............. $ 19,764 $ 19,764 $ 19,726
Improvements............................. - - 38
Acquisitions............................. - - -
Dispositions............................. (17,310)
------------------ ---------------- -----------------
Balance at end of year................... $ 2,454 $ 19,764 $ 19,764
================= ================ =================
Total cost for federal tax
purposes at end of each year............. $ 2,454 $ 19,764 $ 19,764
================= ================ =================
[b] Reconciliation of accumulated depreciation as follows:
Balance at beginning of year............. $ 763 $ 433 $ 104
Depreciation expense..................... 191 330 329
Dispositions............................. (722) - -
------------------ ---------------- -----------------
Balance at end of year................... $ 232 $ 763 $ 433
================= ================ =================
DIRECTORS AND OFFICERS
Board of Directors
Richard A. Bianco Robert E. Long Salvatore Trani Philip M. Halpern
Chairman, President and Chairman, Chief Executive Vice Managing Partner
Chief Executive Officer Executive Officer President Collier, Halpern, Newberg,
AmBase Corporation GLB Group, Inc. BGC Partners, L.P. Nolletti & Bock, LLP
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 2006 Annual Meeting is currently scheduled to be held AmBase Corporation
at 9:00 a.m. Eastern Time, on Friday, May 19, 2006, at: 100 Putnam Green, 3rd Floor
Greenwich, CT 06830-6027
Hyatt Regency Hotel (203) 532-2000
1800 East Putnam Avenue
Greenwich, CT 06870
Stockholder Inquiries
Common Stock Trading Stockholder inquiries, including requests for the
==================== following: (i) change of address; (ii) replacement
AmBase stock is traded through one or more market-makers of lost stock certificates;(iii) Common Stock name
with quotations made available in the "pink sheets" registration changes; (iv) Quarterly Reports on
published by the National Quotation Bureau, Inc. Form 10-Q; (v) Annual Reports on Form 10-K; (vi)
proxy material; and (vii) information regarding
Issue Abbreviation Ticker Symbol stockholdings, should be directed to:
Common Stock AmBase ABCP American Stock Transfer and Trust Company
59 Maiden Lane
New York, NY 10038
Transfer Agent and Registrar Attention: Shareholder Services
============================ (800) 937-5449 or (718) 921-8200 Ext. 6820
American Stock Transfer and Trust
Company In addition, the Company's public reports,
59 Maiden Lane including Quarterly Reports on Form 10-Q, Annual
New York, NY 10038 Reports on Form 10-K and Proxy Statements, can be
Attention: Shareholder Services obtained through the Securities and Exchange
(800) 937-5449 or (718) 921-8200 Ext. 6820 Commission EDGAR Database over the World Wide Web
at www.sec.gov.
Independent Registered Public Accountants Number of Stockholders
PricewaterhouseCoopers LLP As of February 28, 2006, there were
PricewaterhouseCoopers Center approximately 15,000 stockholders.
300 Madison Avenue, 32nd Floor
New York, NY 10017