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; with approximately 3,500 square feet utilized by the Company for its executive offices; the remaining space is currently unoccupied and available for lease. 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. The Company earns non-operating revenue principally consisting of investment earnings 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 associated with its legal claims, as described in Part II - Item 8 - Notes 9 and 10 to the Company’s consolidated financial statements. Discussions and negotiations are ongoing with respect to certain of these matters. 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 6 employees at December 31, 2010.
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”), which 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. The Company remains a shareholder in SDG and AMDG and will continue to monitor the status of SDG and its subsidiary, AMDG, Inc. These investments have no current carrying value, as the Company’s original cost basis was previously written off.
In July 2005, the Company sold its 38,000 square foot office building at Two Soundview Drive in Greenwich, Connecticut (“Two Soundview”). Accordingly, the results of operations of Two Soundview were retroactively reclassified as discontinued operations. In connection with the sale, the Company recorded a gain of $10,290,000 in 2005.
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
As the Company does not maintain a website, 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 available on the SEC’s website at www.sec.gov. Materials filed with the SEC may also be read or copied by visiting the SEC’s Public Reference Room, 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
ITEM 1A.
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 proceeding seeking recovery of damages for the loss of the Company’s investment in Carteret. There can be no assurance of a favorable outcome for the Company in this legal proceeding.
The Company is a plaintiff in a legal proceeding 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:
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Deterioration in regional and local economic and real estate market conditions,
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potential changes in supply of, or demand for rental properties similar to the Company’s,
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competition for tenants and changes in rental rates,
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concentration in a single real estate asset and class,
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difficulty in reletting properties on favorable terms or at all,
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impairments in the Company’s ability to collect rent payments when due,
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the potential for uninsured casualty and other losses,
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the impact of present or future environmental legislation and compliance with environmental laws,
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adverse changes in zoning laws and other regulations,
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changes in federal or state tax laws, and
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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 available rental space remains unoccupied or future 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 value of the Company’s real estate is 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 for its unoccupied rental space 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 the Company 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 its presently available rental space may not be successfully rented, 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 this location, 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 of 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 makes 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 well as any future revenue from the property.
Changes in the composition of the Company’s assets and liabilities through acquisitions, divestitures or corporate restructuring may affect the Company’s results.
The Company may make future acquisitions or divestitures of assets or changes in how such assets are held. Any change in the composition of the Company’s assets and liabilities or how such assets and liabilities are held 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 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 be 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
The Company, through a wholly owned subsidiary, 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.
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.
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. Other than those noted below, 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, 2010:
Name
Age
Title
Richard A. Bianco
Chairman, President and Chief Executive Officer
John P. Ferrara
Vice President, Chief Financial Officer and Controller
Joseph R. Bianco
Treasurer
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.
Mr. J. Bianco was elected to the position of Treasurer of the Company in January 1998. He has dedicated his career to the financial services and investment industry. Prior to his employment with the Company in 1996, he worked for Merrill Lynch & Co. (“Merrill”) as Vice President, responsible for Sales and Marketing in the Merrill Global Securities Clearing from 1983 to 1996. Mr. Joseph R. Bianco and Mr. Richard A. Bianco are related.
PART II
ITEM 5.
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.
As of February 28, 2011, there were approximately 13,700 beneficial owners of the Company’s Common Stock. No dividends were declared or paid on the Company’s Common Stock in 2010 or 2009. The Company does not intend to declare or pay dividends in the foreseeable future.
For information concerning the Company’s stockholder rights plan, see Part II - Item 8 - Note 5 to the Company’s consolidated financial statements.
Common Stock Repurchase Plan
In January 2002, the Company announced a common stock repurchase plan (the “Repurchase Plan”) which allows for the repurchase by the Company of up to 10 million shares of its common stock in the open market.
The Repurchase Plan is conditioned upon favorable business conditions and acceptable prices for the common stock. Purchases under the Repurchase Plan may be made, from time to time, in the open market, through block trades or otherwise. Depending on market conditions and other factors, purchases may be commenced or suspended any time or from time to time without prior notice.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the Company’s Common Stock for the past five years with the performance of the Standard & Poor’s 500 Financials Index (S&P 500 Financials) and the Standard & Poor’s 500 Stock Index (S&P 500) for that period. The graph assumes that a $100 investment was made in the Company’s Common Stock and each of the indices at the earliest date shown, and the dividends, if any, were reinvested. No dividends have been paid by the Company over the past five (5) years. The stock price performance shown in the graph below should not be considered indicative of potential future stock price performance.
ITEM 6.
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.
ITEM 7.
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.
BUSINESS OVERVIEW
AmBase Corporation (the “Company”) is a holding company which, through a wholly-owned subsidiary, owns a commercial office building in Greenwich, Connecticut. 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 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 assets currently consist primarily of cash and cash equivalents, investment securities, and real estate owned. The Company earns non-operating revenue consisting principally of investment earnings 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 associated with its legal claims, as described in Part I - Item 1. Discussions and negotiations are ongoing with respect to certain of these matters. 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.
FINANCIAL CONDITION AND LIQUIDITY
The Company’s assets at December 31, 2010, aggregated $11,762,000, consisting principally of cash and cash equivalents of $1,334,000, investment securities of $8,200,000 and real estate owned of $1,969,000. At December 31, 2010, the Company’s liabilities aggregated $222,000. Total stockholders’ equity was $11,540,000.
For the year ended December 31, 2010, cash of $1,899,000 was used by operations, including the payment of operating expenses and prior year accruals; partially offset by the receipt of interest income and investment earnings. The cash needs of the Company for 2010 were principally satisfied by the Company’s financial resources and to a lesser extent the receipt of investment earnings on investment securities and cash equivalents. Management believes that the Company’s liquid assets are sufficient to continue operations for the next twelve months.
For the year ended December 31, 2009, cash of $2,349,000 was used by operations, including the payment of legal expenses relating to the Supervisory Goodwill proceedings, the payment of operating expenses and to a lesser extent prior year accruals; partially offset by the receipt of interest income and investment earnings. The cash needs of the Company for 2009 were principally satisfied by the Company’s financial resources and to a lesser extent the receipt of investment earnings on investment securities and cash equivalents.
For the year ended December 31, 2008, cash of $4,781,000 was used by operations, including the payment of operating expenses and prior year accruals; partially offset by the receipt of interest income and investment earnings. The cash needs of the Company for 2008 were principally satisfied by the Company’s financial resources and to a lesser extent the receipt of investment earnings on investment securities and cash equivalents.
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; approximately 3,500 square feet is utilized by the Company for its executive offices; the remaining space is currently unoccupied and available for lease. Although the portion of the building not being utilized by the Company is currently unoccupied and available for lease, based on the Company’s analysis, including but not limited to current market rents in the area, leasing values, and comparable property sales, the Company believes the property’s fair value exceeds the property’s current carrying value. Therefore, the Company believes the carrying value of the property as of December 31, 2010, has not been impaired. For additional information see Part II - Item 8 - Note 6 to the Company’s consolidated financial statements.
Other assets as of December 31, 2010, increased as compared to December 31, 2009, due to a minority interest investment in a real estate limited liability company made by the Company in January 2010. Accounts payable and accrued liabilities as of December 31, 2010, decreased from December 31, 2009, principally as a result of the payment of prior year accruals.
There are no material commitments for capital expenditures as of December 31, 2010. 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 associated with its legal claims as described in Part I - Item 1. Discussions and negotiations are ongoing with respect to certain of these matters. 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. 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
The Company earns non-operating revenue consisting principally of investment earnings on investment securities and cash equivalents. The Company’s management believes that operating cash needs for the next twelve months will be met principally by the Company’s financial resources and to a lesser extent, the receipt of investment earnings on investment securities and cash equivalents.
The Company recorded a net loss of $1,960,000 or $0.04 per share for the year ended December 31, 2010, and $2,411,000 or $0.06 per share for the year ended December 31, 2009, and $4,431,000 or $0.10 per share for the year ended December 31, 2008.
Compensation and benefits decreased to $1,393,000 in 2010 from $1,508,000 in 2009, and from $1,533,000 in 2008. The decrease in 2010 is due to lower compensation expenses due to reduced staffing levels as well as a lower level of benefit costs in 2010 versus 2009. The decrease in compensation and benefits in 2009 compared to 2008 is due to a lower level of incentive compensation accruals in 2009 as well as a lower level of benefit costs in 2010 versus 2009. Incentive compensation accruals remained unchanged at $179,000 in 2010, 2009 and 2008.
No stock based compensation expense was recorded for the years ended December 31, 2010, 2009 and 2008, as all previously granted outstanding options vested as of January 2, 2007. No stock option awards have been granted since January 2005.
Professional and outside services decreased to $272,000 in 2010 from $627,000 in 2009. The decrease in 2010 as compared to 2009 is principally the result of a lower level of legal and professional fees relating to the Supervisory Goodwill litigation in 2010 versus 2009 and to a lesser extent, a lower level of other corporate professional fees. Professional and outside services decreased to $627,000 in 2009 from $3,286,000 in 2008. The decrease in 2009 as compared to 2008 is principally the result of a lower level of legal and professional fees relating to the Supervisory Goodwill litigation in 2009 versus 2008. The Supervisory Goodwill litigation expenses in 2009 included expenses incurred in connection with post trial arguments and post trial brief preparation which were concluded in June 2009. The Supervisory Goodwill litigation expenses for 2008 include expenses relating to the preparation for the trial and actual trial expenses incurred during 2008. See Part II - Item 8 - Note 10 to the Company’s consolidated financial statements for a discussion of the Supervisory Goodwill litigation proceedings.
Property operating and maintenance expenses were $111,000 in 2010, $106,000 in 2009, and $116,000 in 2008. Property operating and maintenance expenses have been maintained at consistent levels over the last several years despite the general increases in utility costs as a result of overall cost containment measures.
Insurance expenses decreased to $38,000 in 2010, compared with $59,000 in 2009 and $73,000 in 2008. The decrease is generally due to a decline in insurance premium costs due to cost containment efforts and reductions in coverage levels.
Interest income was $22,000 in 2010, $50,000 in 2009, and $353,000 in 2008. The decrease in 2010 compared to 2009 is principally due to a decreased yield on investments due to decreasing interest rates and a lower level of cash equivalents and investment securities. The decrease in 2009 compared to 2008 is due to a decreased yield on investments due to decreasing interest rates and a lower average level of cash equivalents and investment securities. See Item 3 - Quantitative and Qualitative Disclosure about Market Risk for information concerning the Company’s weighted average interest rate yield on investment securities.
During 2010 realized gains on sales of investment securities available for sale were $31,000. The gains in 2010 are the result of a higher level of investment securities available for sale and realization of gains on sales due to market appreciation.
Other income of $50,000 for the year ended December 31, 2009, is attributable to reimbursement received by the Company in March 2009, for expenses relating to a proposed real estate transaction which was terminated in 2008. Other income of $247,000 in 2008 is attributable to an IRS interest refund, received by the Company in June 2008. The IRS refund in 2008 resulted from the Company’s pursuit of interest refund claims for several prior tax years under a tax code provision which allowed for the retroactive recovery of the interest differential where a taxpayer had a tax underpayment (subject to higher interest payment rates) for one tax year and a simultaneous tax overpayment (subject to lower interest refund rates) for another tax year.
For the year ended December 31, 2010 and 2009, the Company recorded income tax provisions of $58,000 and $56,000, respectively. The Company recorded an income tax benefit of $160,000 in 2008 due to the reversal of prior year estimated tax accruals. The 2010 and 2009 income tax provisions are primarily attributable to a provision for a minimum tax on capital imposed by 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.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
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.
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 or state authorities. In October 2009, the Company received notification from the IRS that they would be reviewing the Company’s 2007 federal income tax return. In connection with the IRS audit, in April 2010, the IRS issued the Company a Notice of Proposed Adjustment for tax year 2007, proposing to disallow approximately $16.6 million of deductions previously recognized by the Company on its 2007 Federal income tax return (the “IRS Proposed Adjustment”). The IRS Proposed Adjustment seeks to disallow the Company’s tax deduction for the payment made by the Company in 2007 in satisfaction of its Supplemental Retirement Plan obligation. This matter is currently ongoing. The accrued amounts for income taxes reflect management’s best judgment as to the amounts payable for all open tax years.
Deferred Tax Assets: As of December 31, 2010, 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 $40 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 current standards, 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
There are no new accounting pronouncements that would materially affect the Company’s financial statements or results of operations for the periods reported herein.
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 or make oral statements that constitute forward looking statements. 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 earning, 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. The Company cautions readers that a variety of factors could cause the Company’s actual results to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. These risks and uncertainties, many of which are beyond the Company’s control, include, but are not limited to 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. These are not the only risks that we face. There may be additional risks that we do not presently know of or that we currently believe are immaterial which could also impair our business and financial position.
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.
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, 2010 and 2009, with maturity dates of less than one year consist of the following:
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.
Due to current market factors, the Company has maintained its available cash resources in U.S. Treasury Bills, which are currently providing a nominal investment yield.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MARCUM LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
AmBase Corporation
We have audited the accompanying consolidated balance sheet of AmBase Corporation and subsidiaries (the “Company”) as of December 31, 2010, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year then ended. Our audit also included the financial statement schedule. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.
We conducted our audit 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. The Company is not required to have, nor were we engaged to perform, an audit of its' internal control over financial reporting. Our audit included consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AmBase Corporation and subsidiaries, as of December 31, 2010, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
New Haven, CT
March 30, 2011
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF UHY LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
AmBase Corporation
We have audited the accompanying consolidated balance sheet of AmBase Corporation and subsidiaries (the “Company”) as of December 31, 2009, and the related consolidated statements of operations, changes in stockholders’ equity, comprehensive loss and cash flows for each of the two years in the period ended December 31, 2009. Our audits also included the financial statement schedules listed in the Index as Item 15(a). These consolidated financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of AmBase Corporation and subsidiaries as of December 31, 2009, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ UHY LLP
New Haven, CT
March 30, 2010
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31
(in thousands, except per share data)
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 mounts)
Assets:
Cash and cash equivalents
$
1,334
$
1,715
Held to maturity investments (market value $8,199 in 2010 and $10,000 in 2009)
8,200
9,996
Real estate owned:
Land
Buildings
1,900
1,900
2,454
2,454
Accumulated depreciation
(485
)
(436
)
Real estate owned, net
1,969
2,018
Other assets
Total assets
$
11,762
$
13,801
Liabilities and Stockholders’ Equity:
Liabilities:
Accounts payable and accrued liabilities
$
$
Other liabilities
Total liabilities
Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock ($0.01 par value, 200,000,000 authorized, 46,410,007 issued and 43,075,410 outstanding in 2010 and 2009)
Additional paid-in capital
548,044
548,044
Accumulated deficit
(534,859
)
(532,899
)
Treasury stock, at cost - 3,334,597 shares
(2,109
)
(2,109
)
Total stockholders’ equity
11,540
13,500
Total liabilities and stockholders’ equity
$
11,762
$
13,801
The accompanying notes are an integral part of these consolidated financial statements.
AMBASE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
(in thousands)
Common stock
Additional paid-in capital
Accumulated deficit
Treasury stock
Total
December 31, 2007
$
$
548,044
$
(526,057
)
$
(1,873
)
$
20,578
Net loss
-
-
(4,431
)
-
(4,431
)
Common stock repurchased
-
-
-
(219
)
(219
)
December 31, 2008
548,044
(530,488
)
(2,092
)
15,928
Net loss
-
-
(2,411
)
-
(2,411
)
Common stock repurchased
-
-
-
(17
)
(17
)
December 31, 2009
548,044
(532,899
)
(2,109
)
13,500
Net loss
-
-
(1,960
)
-
(1,960
)
Common stock repurchased
-
-
-
-
-
December 31, 2010
$
$
548,044
$
(534,859
)
$
(2,109
)
$
11,540
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)
Cash flows from operating activities:
Net loss
$
(1,960
)
$
(2,411
)
$
(4,431
)
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation and amortization
Realized gains on sales of investment securities
(31
)
-
-
Changes in other assets and liabilities:
Accrued interest receivable in investment securities
(10
)
Other assets
Accounts payable and accrued liabilities
(69
)
(15
)
(658
)
Other liabilities
(10
)
(10
)
Net cash used by operating activities
(1,899
)
(2,349
)
(4,781
)
Cash flows from investing activities:
Maturities of investment securities - held to maturity
45,376
32,786
37,036
Purchases of investment securities - held to maturity
(43,589
)
(31,372
)
(32,263
)
Purchases of investment securities
-
-
Sales of investment securities
(946
)
-
-
Investment in real estate limited partnership
(300
)
-
-
Net cash provided by investing activities
1,518
1,414
4,773
Cash flows from financing activities:
Common stock repurchased
-
(17
)
(219
)
Net cash used by financing activities
-
(17
)
(219
)
Net change in cash and cash equivalents
(381
)
(952
)
(227
)
Cash and cash equivalents at beginning of year
1,715
2,667
2,894
Cash and cash equivalents at end of year
$
1,334
$
1,715
$
2,667
Supplemental cash flow disclosure:
Income taxes paid
$
$
$
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. 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 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 currently earns non-operating revenue consisting principally of investment earnings 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 associated with its legal claims, as described in Notes 9 and 10. Discussions and negotiations are ongoing with respect to certain of these matters. 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.
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”).
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.
Cash and cash equivalents
Highly liquid investments, consisting principally of funds held in short-term money market accounts, with original maturities of less than three months, are classified as cash equivalents.
Investment securities
Securities that the Company has both the positive intent and ability to hold to maturity are classified as investment securities - held to maturity and are carried at amortized cost. Investment securities - available for sale, were those securities that could be sold prior to maturity, were carried at fair value, with any net unrealized gains or losses reported in a separate component of other comprehensive income (loss), net of taxes.
Interest and dividends on investment securities are recognized 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.
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 operations.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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. 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.
Earnings per share
Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net loss 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. Options were anti-dilutive for all periods presented.
Stock-based compensation
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, 2018. 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. Options granted generally have a ten year contractual life and generally have vesting terms of two years from the date of grant. In the case of a “Change of Control” of the Company (as defined in the 1993 Plan), options granted pursuant to the 1993 Plan may become fully exercisable as to all optioned shares from and after the date of such Change in Control in the discretion of the Committee or as may otherwise be provided in the grantee’s Option agreement. Death, retirement, or absence for disability will not result in the cancellation of any Options.
Stock-based compensation expense for all stock-based compensation awards for which vesting is based solely on employment service, are based on the grant date fair value estimated in accordance with accounting principles generally accepted in the United States of America. The Company recognizes these compensation costs for only those shares expected to vest, on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of two years. Compensation expense relating to stock options would be recorded in the Consolidated Statement of Operations, with a corresponding increase in additional paid in capital in the Consolidated Statement of Stockholders’ Equity. See Note 8 herein for a further discussion of stock-based compensation.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Deferred rent receivable and revenue recognition
The Company previously earned rental income under operating leases with tenants. Minimum lease rentals were recognized on a straight-line basis over the term of the leases. The cumulative difference between lease revenue recognized on the straight-line method and the contractual lease payment terms, if any, was recorded as deferred rent receivable or payable and was included in other assets or other liabilities on the Consolidated Balance Sheets, as applicable. Revenue from tenant reimbursement of common area maintenance, utilities and other operating expenses were recognized pursuant to the tenant’s lease when earned and due from tenants.
Depreciation
Depreciation expense for buildings is calculated on a straight-line basis over 39 years. Tenant improvements if any, would be depreciated over the lesser of the remaining life of the tenants’ lease or the estimated useful lives of the improvements.
Liquidity
The Company’s management currently anticipates that operating cash needs for the next twelve months will be met principally by the Company’s current financial resources and the receipt of investment earnings on investment securities and cash equivalents.
New Accounting Pronouncements
There are no new accounting pronouncements that would likely materially affect the Company’s financial statements.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 3 - Investment Securities
Investment securities - held to maturity consist of U.S. Treasury Bills with original maturities of three months or more and are carried at amortized cost (which includes accrued interest) based upon the Company’s intent and ability to hold these investments to maturity.
Investment securities at December 31 consist of the following:
The gross unrealized gain (loss) on investment securities at December 31, consist of the following:
(in thousands)
Held to Maturity:
Gross unrealized (loss) gain
$
(1
)
$
Realized gain on the sales of investment securities available for sale follow:
(in thousands)
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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)
Net loss
$
(1,960
)
$
(2,411
)
$
(4,431
)
Weighted average common shares outstanding
43,075
43,152
43,571
Effect of Dilutive Securities:
Assumed stock option exercise
-
-
-
Weighted average common shares outstanding assuming dilution
43,075
43,152
43,571
Net loss per common share:
Basic
$
(0.04
)
$
(0.06
)
$
(0.10
)
Assuming dilution
(0.04
)
(0.06
)
(0.10
)
Options to purchase common stock of 836,000 shares in 2010, 851,000 shares in 2009, and 866,000 shares in 2008 were excluded from the computation of diluted earnings per share because they were antidilutive in the computation of earnings per share.
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:
Balance at beginning of year
43,075,410
43,215,464
43,858,664
Common shares repurchased
-
(140,054
)
(643,200
)
Balance at end of year
43,075,410
43,075,410
43,215,464
Common stock balances exclude treasury shares as of December 31, as follows:
Treasury shares
3,334,597
3,334,597
3,194,543
Aggregate dollar value of treasury shares
$
2,109,000
$
2,109,000
$
2,092,000
Average cost per treasury share
$
0.63
$
0.63
$
0.66
At December 31, 2010, there were 5,110,000 common shares reserved for issuance under the Company’s stock option and other employee benefit plans.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 2016.
Common Stock Repurchase Plan
In January 2002, the Company announced a common stock repurchase plan (the “Repurchase Plan”) which allows for the repurchase by the Company for up to 10 million shares of its common stock in the open market.
The Repurchase Plan is conditioned upon favorable business conditions and acceptable prices for the common stock. Purchases under the Repurchase Plan may be made, from time to time, in the open market, through block trades or otherwise. Depending on market conditions and other factors, purchases may be commenced or suspended any time or from time to time without prior notice.
Note 6 - Property Owned
The Company owns one commercial office building in Greenwich, Connecticut that contains approximately 14,500 square feet. The Company utilizes approximately 3,500 square feet for its executive offices; the remaining space is currently unoccupied and available for lease. Depreciation expense for the building is recorded on a straight-line basis over 39 years. Tenant improvements, if any, would typically be depreciated over the lesser of the remaining life of the tenants’ lease or the estimated useful lives of the improvements. The building is carried at cost, net of accumulated depreciation of $485,000 and $436,000 at December 31, 2010 and 2009, respectively.
Although the portion of the building not being utilized by the Company is currently unoccupied and available for lease, based on the Company’s analysis, the Company believes the property’s fair value exceeds the property’s current carrying value. The Company’s impairment analysis includes a comprehensive range of factors including but not limited to: the location of the property; property condition; current market conditions; comparable sales; current market rents in the area; new building zoning restrictions; raw land values; new building construction costs; building operating costs; leasing values; and cap rates for comparable buildings in the area. Varying degrees of weight are given each factor. Based on the Company’s analysis these factors taken together and/or considered individually form the basis for the Company’s analysis that no impairment condition exists.
The Company performs impairment tests if events or circumstances indicate that the property’s carrying value may not be recoverable. As noted above, based on the Company’s analysis the Company believes the carrying value of the property as of December 31, 2010, has not been impaired and; therefore, the carrying value of the asset is fully recoverable by the Company.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 7 - Savings Plans
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 30% of compensation, which are matched by the Company at a percentage determined annually. Effective July 1, 2010, the employer match was reduced to 33% of the amount of the employee’s elected deferral. As of January 2009, the employer match was reduced to 75% of the amount the employee elected to defer from the 2008 employer match of 100%. 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 $43,000, $52,000 and $69,000 in 2010, 2009 and 2008, 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 2010, 2009, or 2008.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 2018. 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. Options granted generally have a ten year contractual life and generally have vesting terms of two years from the date of grant. In the case of a “Change of Control” of the Company (as defined in the 1993 Plan), Options granted pursuant to the 1993 Plan may become fully exercisable as to all optioned shares from and after the date of such Change in Control in the discretion of the Committee or as may otherwise be provided in the grantee’s Option agreement. Death, retirement, 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.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Incentive plan activity is summarized as follows:
The following table summarizes information about the Company’s stock options outstanding and exercisable under the 1993 Plan at December 31, 2010, as follows:
At December 31, 2010, the weighted average remaining contractual life in years for options outstanding and options exercisable was 2.42 years. At December 31, 2010, the exercise price of stock options outstanding and exercisable was greater than the market price of the Company’s stock; therefore, no intrinsic value for stock options is reflected herein.
As of December 31, 2010, 2009 and 2008, there was no remaining unamortized compensation cost related to non-vested share-based compensation arrangements related to stock options granted under the 1993 Plan and no stock based compensation expense was recorded in 2010, 2009 and 2008, as all previously granted outstanding options vested as of January 2, 2007. No stock option awards have been granted since January 2005. Compensation expense relating to stock options would be recorded in the Consolidated Statement of Operations, with a corresponding increase to additional paid in capital in the Consolidated Statement of Stockholders’ Equity. As of December 31, 2010, there were 4,164,000 shares available for future stock option grants.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The fair value of each option award was estimated on the date of grant using the Black-Scholes-Merton option valuation model (“Black-Scholes”) utilizing certain assumptions. Expected volatilities are based on historical volatility of the Company’s stock. The Company uses historical data to estimate option exercises and employee terminations within the valuation model. The expected term of options granted is estimated based on the contractual lives of option grants, option vesting period and historical data and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury bond yield in effect at the time of grant.
The Black-Scholes option valuation model requires the input of highly subjective assumptions, including the expected life of the stock-based award and stock price volatility. The assumptions utilized represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if other assumptions had been used, our recorded stock-based compensation expense could have been materially different from the amounts previously recorded. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If the actual forfeiture rate is materially different from our estimate, the share-based compensation expense could be materially different. The Company believes that the use of the Black-Scholes model meets the fair value measurement objectives of accounting principles generally accepted in the United States of America and reflects all substantive characteristics of the instruments being valued.
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.
Note 9 - Income Taxes
The components of income tax (expense) benefit for the years ended December 31 are as follows:
The components of pretax loss and the difference between income taxes computed at the statutory federal rate of 35% in 2010, 2009 and 2008, and the provision for income taxes for the years ended December 31 follows:
There were no unrecognized tax benefits at January 1, 2010 or December 31, 2010. Further, no significant changes in unrecognized income tax benefits are currently expected to occur over the next year. Interest and/or penalties related to underpayments of income taxes, if applicable, would be included in interest expense and operating expenses, respectively. The accompanying financial statements do not include any amounts for any such interest and/or penalties. The Company’s federal income tax returns for the years subsequent to 1992 have not been reviewed by the Internal Revenue Service (“IRS”) or state authorities. In October 2009, the Company received notification from the IRS that they would be reviewing the Company’s 2007 federal income tax return. In connection with the IRS audit, in April 2010, the IRS issued the Company a Notice of Proposed Adjustment for tax year 2007, proposing to disallow approximately $16.6 million of deductions previously recognized by the Company on its 2007 Federal income tax return (the “IRS Proposed Adjustment”). The IRS Proposed Adjustment seeks to disallow the Company’s tax deduction for the payment made by the Company in 2007 in satisfaction of its Supplemental Retirement Plan obligation. This matter is currently ongoing. See Note 10 - Legal Procedures for further information. The Company has not been notified of any potential tax audits by any state or local tax authorities. As such, the Company believes the statute of limitations for federal and state purposes are generally closed for tax years prior to 2007.
State income tax amounts for 2010 and 2009 are primarily attributable to a provision for a minimum tax on capital imposed by the state of Connecticut. The Company recorded an income tax benefit of $160,000 in 2008 due to the reversal of prior year estimated tax accruals.
During 2008, the Company recorded other income of $247,000 attributable to an IRS interest refund received by the Company in June 2008. The refunds resulted from the Company’s pursuit of interest refund claims for several prior tax years under a tax code provision which allowed for the retroactive recovery of the interest differential where a taxpayer had a tax underpayment (subject to higher interest payment rates) for one tax year and a simultaneous tax overpayment (subject to lower interest refund rates) for another tax year.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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. §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. §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. §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. The Company believes, as a result of remaining consolidated with Carteret FSB for federal income tax return purposes, that the Company’s tax basis in its’ investment in Carteret/Carteret FSB can be converted into NOL’s, as tax losses are incurred, which could be available to carryforward/carryback into various federal income tax return years. However; since all of the Carteret FSB tax information has not been received, the Company is unable to determine with certainty, the amount of or the years in which any NOL’s may ultimately be generated; if the NOL carryforwards/carrybacks will be utilized in prior federal income tax return years; or the final expiration dates of any of the NOL carryforwards/carrybacks ultimately generated.
Based on information received to date, and prior to the recognition of the 1992 tax losses reflected on the Company’s 1992 amended federal income tax return, as further described below, the Company estimated that as of December 1992 it had a remaining tax basis related to its’ investment in Carteret/Carteret FSB of approximately $158 million. Based on the Company’s Election Decision, described above, and the receipt of some of the requested information from the RTC/FDIC, the Company 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 reviewing its consolidated federal income tax returns for 1993 and subsequent years.
The Company expects that the 1992 Amended Return will generate approximately $56 million of NOL’s for tax year 1992, which the Company is seeking to carryback to prior tax years to produce refunds of tax previously paid. The 1992 Amended Return has not yet been accepted by the IRS. See “Carryback Claims,” below for further information. As part of the 1992 Amended Return approximately $56 million, (of the $158 million), of Carteret/Carteret FSB tax basis is expected to be converted into NOL’s, (as tax losses are incurred) in tax year 1992, and will have expired in the 2007 tax year, unless they are utilized as part of the “Carryback Claims,” or absorbed in earlier years based on inclusion of certain items in the consolidated group.
The Carteret/Carteret FSB tax basis, of approximately $102 million, remaining after recognition of the 1992 Amended Return, may be converted into NOL carryforwards/carrybacks as additional tax losses are incurred by Carteret/Carteret FSB and may be carried back or carried forward to other tax years; may be utilized in other tax years; or could begin to expire no earlier than the 2008 tax year based upon the year any NOL’s are ultimately generated. The Company can give no assurances with regard to the 1992 Amended Return, subsequent year returns, or the final amount or expiration of NOL carryforwards/carrybacks ultimately generated, if any, from the Company’s tax basis in Carteret/Carteret FSB. Any NOL’s ultimately generated from the Company’s tax basis in Carteret/Carteret FSB, would be in addition to the NOL carryforwards/carrybacks generated based on the Company’s federal income tax returns as previously filed, as further detailed above.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In March 2000, the Company filed with the IRS several carryback claims and amendments to previously filed carryback claims (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. On April 29, 2008, the Company filed suit in the United States District Court for the District of Connecticut for the tax refunds it seeks, plus interest, with respect to the Carryback Claims. On September 29, 2009, the U.S. Department of Justice, representing defendant United States in the suit, filed a Motion to Dismiss. In response, on October 19, 2009, the Company filed its opposition to the Government’s Motion to Dismiss, as well as the Company’s own Motion for Partial Summary Judgment. In June 2010, the Court issued a Memorandum Decision conditionally granting the United States’ Motion to Dismiss the case but allowing the Company to conduct limited discovery to establish whether the Court has jurisdiction. On August 30, 2010, the Company filed a Motion to Set Aside the Court’s Conditional Order of Dismissal. On February 28, 2011, the Court granted the Company’s motion and issued a Memorandum of Decision concluding that the Company had timely filed a refund claim for tax year 1992 seeking to adjust the amount of bad debt deduction and that the case should not be dismissed. The Court’s ruling is not dispositive of the case. The Company can give no assurances as to the final amount of refunds, if any, or when they might be received. See Note 10 - Legal Proceedings.
The FDIC has previously filed a federal income tax return for Carteret FSB for 1995 (as well as other years), which indicates that Carteret FSB allegedly could owe a 1995 federal income tax liability of $32 million, which including interest and penalty thereon, is alleged to be in excess of $120 million. The FDIC has stated to the United States Court of Federal Claims (“Court of Claims”) that the tax amounts are only estimates and are highly contingent. However; it is possible that the IRS may try to collect the alleged Carteret FSB federal income taxes from the Carteret FSB receivership.
The Company believes the Carteret FSB federal income tax returns filed by the FDIC were improperly filed and are neither accurate nor valid. The FDIC, as indicated above, continues to report the 1995 federal income tax liability, including interest and penalty, as a component of the alleged Carteret FSB receivership deficit. As part of the Supervisory Goodwill legal proceedings, the Company presented to the Court of Claims various arguments to support the position that no federal income tax would be owed as a result of the Carteret FSB receivership operations for tax year 1995; however, the Department of Justice and the FDIC have stated to the Court of Claims that they do not believe the Court of Claims has jurisdiction over that issue. The Supervisory Goodwill proceedings remain pending in the Court of Claims. Based on the information received to date, if the correct Carteret FSB federal income tax results were included with the Company’s originally filed federal income tax returns, the Company based upon consultation with its legal and tax advisors believes that no additional material federal income tax would be owed by the Company, although this cannot be assured because a contrary result is possible, given the uncertainty with various legal and factual assumptions underlying the Company’s beliefs. This assessment included among other items, a review of the Carteret FSB federal income tax returns as prepared by the FDIC and the correction of errors originally reported therein, the proper application of federal NOL carryforwards and carrybacks, and the adherence to statute of limitation provisions contained in the Internal Revenue Code, as amended. As explained above, although the Company does not believe that Carteret FSB or the Company will have a material federal income tax liability related to Carteret FSB for tax year 1995 (or any other tax year), the Company can give no assurances of the final amounts, if any, of federal income taxes owed by the Carteret FSB receivership or by the Company as a result of the Carteret FSB receivership operations. The Company is continuing to try to resolve these matters as part of the Supervisory Goodwill legal process and is also continuing to review the Carteret FSB federal income tax returns and the results of their inclusion with the Company’s federal income tax returns as previously filed. The Company is pursuing the Carryback Claims, as further described above, which could have an impact on the analysis of the prior year tax information. For further information on the Supervisory Goodwill legal proceedings, see Note 10 herein. The discussion of the Carteret FSB federal income tax results is intended to provide details as to the potential inter-relationship of the Carteret FSB federal income tax returns with the Company’s federal income tax positions. It is not a reflection of any federal income tax liability of the Company arising from the Carteret receivership operations.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Based upon the Company’s federal income tax returns as filed through 2009 (subject to IRS audit adjustments), excluding all effects of the inclusion of Carteret/Carteret FSB from December 4, 1992 forward, as further discussed above, as of December 31, 2010, the Company has NOL carryforwards available to reduce future federal taxable income, which expire if unused, as follows:
Tax
Year
Amount
$
1,100,000
5,400,000
4,000,000
2,600,000
4,000,000
3,200,000
1,800,000
700,000
2,800,000
3,100,000
4,600,000
2,400,000
$
35,700,000
In addition to the NOL carryforwards noted above, the Company currently estimates that, an additional $16.7 million of NOL carryforwards could be generated from the 2007 tax year which would expire if unused in the 2027 tax year, however, as discussed above, in connection with the IRS’s 2007 Federal income tax return audit, the IRS is proposing to disallow approximately $16.6 million of the NOL carry forwards generated from the 2007 tax year; this matter is ongoing. Additionally, approximately $2.0 million of NOL carryforwards could be generated from the 2010 tax year which would expire if unused in the 2030 tax year. In the 2010 tax year, approximately $5.3 million of NOL carryforwards originating from the 1995 tax year expired to the extent they remain unused and in the 2009 tax year, approximately $2.2 million of NOL carryforwards originating from the 1994 tax year expired to the extent they remain unused. The unused carryforwards will have expired unless they are utilized in prior tax years or absorbed in an earlier year based on inclusion of certain items in the consolidated group. The utilization of certain carryforwards and carrybacks 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 defined further above, the Company would seek to utilize approximately $8 million of the $21 million of AMT Credits.
The Company has calculated a net deferred tax asset of $40 million and $41 million as of December 31, 2010 and 2009, respectively, arising primarily from NOL carryforwards and AMT credits. This amount does not include the anticipated tax effects of the NOL’s which could be generated from the Company’s investment 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.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 10 - Legal Proceedings
The Company is or has been a party in a number of lawsuits or proceedings, including the following:
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; several 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 governed further pretrial 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 on 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-Intervener 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 (“Judge Smith”) 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.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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-intervener 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 DOJ responded with the theories that, among other things, 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 to review the accuracy, validity, or amount of the Carteret receivership deficit reported by the FDIC. That receivership deficit consists primarily 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.
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 DOJ 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 was denied. The Court further ordered that this matter be stayed for 30 days for the Defendant and/or Plaintiff-Intervener 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 for May 2005, to discuss the need for further discovery.
AMBASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 DOJ 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 filed its reply to these motions on March 29, 2005. In April 2005, Judge Smith heard oral argument on the DOJ and 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 was 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 that 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 were 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.
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 provided that (i) 45 days after the close of discovery, the Company was 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 were to file responses; and (iii) 15 days after the filing of such responses, the Company was to file a reply.
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. In September 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 would be given 75 days from the completion of the document production to complete discovery. 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 was completed in April 2006, and the Company’s statement of issues was ultimately filed in June of 2006. In May 2006, the Company served on the Government an expert report in support of some of the arguments the Company made regarding the size of the receivership deficit. The Company’s expert was deposed in July 2006. In early August 2006, the Government submitted its own expert report on receivership deficit issues, and in October 2006, the Company deposed the Government’s expert. In late August 2006, the Government filed a response to the Company’s Statement of Issues, and in September 2006, the FDIC filed its own response to the Statement of Issues. The Company filed its reply in support of its Statement of Issues in October 2006. A status conference was held in November 2006 and December 2006, to discuss further proceedings. On December 13, 2006, the Court entered an order denying defendant’s request that the Court allow an immediate appeal of the Court’s ruling that it had jurisdiction to consider the validity of the receivership deficit. The Court also found that it continued to have jurisdiction to hear the case. The Court also ordered the parties to enter a schedule for expert discovery.
On April 13, 2007, Judge Smith issued an order scheduling pretrial, and trial deadlines and dates, including scheduling a trial to commence on February 11, 2008. In accordance with the Court’s scheduling in May 2007, the Company submitted its expert report. The Government deposed the Company’s expert in June 2007. In July 2007, the Government identified its damages experts and submitted its expert reports in September 2007. The Company deposed the Government’s experts in October 2007.
Pursuant to the Court order, the Court heard oral argument on November 14, 2007 at the Court of Federal Claims, to decide whether the trial could be avoided by summary judgment, pursuant to papers filed by the parties on November 7, 2007 and November 19, 2007. On November 30, 2007, the Court ordered the parties to continue with the trial schedule as previously set forth.
AMBASE CORPORATION AND SUBSIDIAIRES
Notes to Consolidated Financial Statements
Subsequently on December 7, 2007, the parties exchanged exhibit and witness lists; on December 14, 2007 the parties submitted an hour-by-hour anticipated trial schedule to the Court; on December 21, 2007 Plaintiffs and FDIC-R filed Appendix A submissions; on January 8, 2008 a pretrial conference was held in the Court of Federal Claims; on January 21, 2008 the Defendant filed Appendix A submissions; and on February 11, 2008 trial was commenced.
Trial testimony of fact and expert witnesses for the Company, the DOJ, and the FDIC was completed on April 4, 2008. At trial, fact witness and expert witness testimony was presented by the Company, and by the United States Government represented by the DOJ. In addition, the FDIC-Receiver (purporting to act as a plaintiff-intervener in its capacity as successor-in-interest to Carteret) participated in the trial and the examination of witnesses. The Company put forth various theories of damages, including claims for the recovery of the value of Carteret as of the date of the breach or the date of judgment, as well as for the recovery of certain so-called “wounded bank” damages incurred by Carteret as a result of the breach. The DOJ responded with various theories, including, among other things that Carteret would have failed even if Supervisory Goodwill was counted. The DOJ also challenged the Company’s calculations of the value of Carteret and the damages theories and evidence underlying the Company’s “wounded bank” claims. The FDIC essentially adopted the Company’s damages claims evidence, but has continued to argue (along with DOJ) that the FDIC-Receiver is entitled to recover on these claims.
The Government and the FDIC-Receiver claim that the Carteret receivership deficit consists of the FDIC’s subrogated claim against the thrift, interest, taxes, and administrative expenses charged by the FDIC-Receiver to the Carteret receivership estate. Because the receivership deficit continues to accrue interest, it grows on a daily basis. The FDIC-Receiver alleges that, as of December 31, 2008, the receivership deficit was approximately $344 million, which included the FDIC’s subrogated claim and other claims of approximately $24 million, interest on the subrogated claim in excess of $195 million, (which the FDIC-Receiver claims is owed to the FDIC from the Carteret receivership), and estimated federal income taxes including interest and penalty thereon of approximately $123 million, which the FDIC has described as contingent. The Company has challenged multiple aspects of the FDIC’s receivership deficit calculations and presented evidence at trial in support of these challenges.
After the completion of trial testimony, the Court held a status conference in April 2008 pursuant to which the Court issued a post trial scheduling order providing for the filing of post trial briefs and proposed findings of fact by the Company, and DOJ and the FDIC. Pursuant to the Court’s post-trial scheduling order as revised on July 1, 2008, the Company filed its post-trial brief and proposed findings of fact. The FDIC also filed its post-trial brief on July 1, 2008. In September 2008, the DOJ filed its post-trial brief and proposed findings of fact. In October 2008, the Company filed its post-trial reply brief and the FDIC filed its post-trial reply brief in November 2008. Post-trial briefing was concluded in December 2008, with the filing of sur-reply briefs by both the Company and DOJ.
On February 12 and 17, 2009, the Court heard closing arguments. At the conclusion of closing arguments, the Court ruled that the FDIC and DOJ could file short supplemental briefs addressing certain limited issues by March 6, 2009, and that the Company could file a short responsive brief on March 25, 2009. In May 2009, the DOJ requested and simultaneously filed with the Court an additional supplemental brief. The Court granted the DOJ’s motion and permitted the DOJ’s additional supplemental brief. The Company subsequently requested and the Court allowed the Company to file a responsive supplemental brief to the DOJ brief which was filed in June 2009. The Company does not know when the Court will issue its final decision. The Company believes any decision rendered by Judge Smith on damages, as well as his decision relating to his authority to review and consider the validity of the alleged receivership deficit, will likely be appealed to the U.S. Court of Appeals for the Federal Circuit.
AMBASE CORPORATION AND SUBSIDIAIRES
Notes to Consolidated Financial Statements
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. Examples of such decisions include Castle v. United States, 301 F.3d 1328 (Fed. Cir. 2002) and Bailey v. United States, 341 F. 3d 1342 (Fed. Cir 2003). In June 2004, the United States Supreme Court denied the petition for certiorari filed by Bailey. The Court of Federal Claims decisions and certain filings in the Company’s case, as well as other decisions in Winstar related cases, are publicly available on the Court of Federal Claims web site at www.uscfc.uscourts.gov. In addition, decisions in Winstar-related cases that have been issued by the U.S. Court of Appeals, the court that hears appeals from decisions by the Court of Federal Claims, may be found on that court’s website at www.cafc.uscourts.gov. Decisions in other Winstar related cases may be relevant to the Company’s Supervisory Goodwill claims, but are not necessarily indicative of the ultimate outcome of the Company’s actions. The Company can give no assurances regarding the ultimate outcome of the Supervisory Goodwill Litigation.
Federal income tax refund suit on Carryback Claims. In March 2000, the Company filed with the IRS several claims and amendments to previously filed claims with respect to 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 February 2005, the IRS formally disallowed the Carryback Claims. On April 29, 2008, the Company filed suit with respect to the Carryback Claims in the United States District Court for the District of Connecticut, seeking federal tax refunds for tax year 1989, plus interest. On September 29, 2009, the U.S. Department of Justice, representing defendant United States in the suit, filed a Motion to Dismiss. In response, on October 19, 2009, the Company filed its opposition to the Government’s Motion to Dismiss, as well as the Company’s own Motion for Partial Summary Judgment. In June 2010, the Court issued a Memorandum Decision conditionally granting the United States’ Motion to Dismiss the case but allowing the Company to conduct limited discovery to establish whether the Court has jurisdiction. On August 30, 2010, the Company filed a Motion to Set Aside the Court’s Conditional Order of Dismissal. On February 28, 2011, the Court granted the Company’s motion and issued a Memorandum of Decision concluding that the Company had timely filed a refund claim for tax year 1992 seeking to adjust the amount of bad debt deduction and that the case should not be dismissed. The Court’s ruling is not dispositive of the case. The Company can give no assurances as to the final amount of refunds, if any, or when they might be received. See Note 9 - Income Taxes for further information.
Note 11 - Fair Value Measurements
The Company applies fair value standards for recurring financial assets and liabilities only. The accounting framework for determining fair value includes a hierarchy for ranking the quality and reliability of the information used to measure fair value, which enables the reader of the financial statements to assess the inputs used to develop those measurements. The fair value hierarchy consists of three tiers as follows:
Level 1 - Quoted prices in active markets are available for identical assets and liabilities.
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities or other inputs that are observable or can be corroborated by observable market data.
Level 3 - Unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The carrying amounts reported in the balance sheets for cash and cash equivalents are based on Level 1 criteria approximate fair value due to the short-term nature of these instruments. The fair value of investment securities - held to maturity are based on current market quotations and therefore are based on Level 2 criteria.
AMBASE CORPORATION AND SUBSIDIAIRES
Notes to Consolidated Financial Statements
Note 12 - Quarterly Financial Information (unaudited)
Summarized quarterly financial information follows:
(in thousands, except per share data)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Full Year
2010:
Operating expenses
$
$
$
$
$
1,955
Operating loss
(549
)
(548
)
(428
)
(430
)
(1,955
)
Net loss
$
(545
)
$
(546
)
$
(418
)
$
(451
)
$
(1,960
)
Per common share data:
Net loss
$
(0.01
)
$
(0.01
)
$
(0.01
)
$
(0.01
)
$
(0.04
)
2009:
Operating expenses
$
$
$
$
$
2,455
Operating loss
(916
)
(525
)
(504
)
(510
)
(2,455
)
Net loss
$
(859
)
$
(515
)
$
(491
)
$
(546
)
$
(2,411
)
Per common share data:
Net loss
$
(0.02
)
$
(0.01
)
$
(0.01
)
$
(0.01
)
$
(0.06
)
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE
(a) Previous independent registered public accounting firm
On April 19, 2010, UHY LLP (“UHY”), our independent registered public accounting firm, informed us that effective April 16, 2010, its New England practice was acquired by Marcum LLP (“Marcum”). UHY also informed us that as a result of this transaction, it declined reappointment as our independent registered public accounting firm for the fiscal year ending December 31, 2010.
UHY audited our financial statements for the fiscal years ended December 31, 2009 and 2008. The audit reports of UHY on our financial statements for those years did not contain an adverse opinion, or a disclaimer of opinion, or qualification or modification as to any uncertainty, audit scope or accounting principles.
During the fiscal years ended December 31, 2009 and 2008, and subsequently to April 22, 2010, there were no disagreements with UHY on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure that, if not resolved to UHY’s satisfaction, would have caused UHY to make reference to the subject matter of the disagreement in connection with its audit reports, nor were there any “reportable events” (as that term is described in Item 304(a)(1)(v) of Regulation S-K).
The Company’s Accounting and Audit Committee and the Board of Directors participated in and approved the decision to change its independent registered public accounting firm. The report of UHY LLP on the financial statements for the fiscal year ended December 31, 2009 and 2008 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle. During the fiscal year ended December 31, 2009 and through April 22, 2010, there were no disagreements with UHY LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures which disagreements if not resolved to the satisfaction of UHY LLP would have caused them to make reference thereto in their report on the financial statements for such year. During the fiscal year ended December 31, 2009 and through April 22, 2010, there were no reportable events (as defined in Item 304(a)(1)(v) or Regulation S-K).
The Company requested that UHY LLP furnish it with a letter addressed to the Securities and Exchange Commission stating whether or not it agreed with the above statements. A copy of such letter, dated April 21, 2010, was filed as an exhibit to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on April 22, 2010.
(b) New independent registered public accounting firm
The Company engaged Marcum LLP as its new independent registered public accounting firm as of April 21, 2010. During the fiscal years ended December 31, 2009 and through April 20, 2010, the Company had not consulted with Marcum LLP regarding any of the matters in Item 304(a)(2)(i) or Item 304(a)(2)(ii) of Regulation S-K. Our audit committee appointed Marcum as the successor independent registered public accounting firm on April 21, 2010 for fiscal year 2010. Prior to such appointment, the Company had not consulted with Marcum with respect to: (1) the application of accounting principles to a specified transaction, either completed or proposed; (2) the type of audit opinion that might be rendered on our financial statements; or (3) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K).
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure 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(e). 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, 2010, the Company completed 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 (as defined in the Securities Exchange Act of 1934 Rule 13a-15(e) and 15d-15(e)). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective at a reasonable assurance level in timely alerting them to material information relating to us which is required to be included in our periodic Securities and Exchange Commission filings.
Evaluation of Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.
Management assessed the effectiveness of the Company’s internal control over financial reporting (as defined in the Securities Exchange Act of 1934 Rule 13a-15(f) and 15d-15(f)) as of December 31, 2010. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment, we believe that, as of December 31, 2010, the Company’s internal control over financial reporting is effective based on those criteria.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information concerning executive officers required by this item is set forth following Item 3 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 June 3, 2011, 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 2010 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.
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 June 3, 2011, under the captions “Executive Compensation,” “Employment Contracts,” and “Compensation of Directors” 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 2010 fiscal year.
ITEM 12.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table summarizes information about securities authorized for issuance under equity compensation plans of the Company at December 31, 2010 as follows:
Shares to be issued upon exercise of outstanding options
Weighted average exercise price of outstanding options
Shares available for future issuance
Equity Compensation
Plans approved by stockholders
836,000
$
0.87
4,164,000
Equity Compensation
Plan not approved by stockholders
-
-
110,000
Total
836,000
$
0.87
4,274,000
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, is 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 June 3, 2011, 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 2010 fiscal year.
ITEM 13.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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 June 3, 2011, under the captions “Proposal No. 1 - Election of Directors” and “Information Concerning the Board and its Committees,” 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 2010 fiscal year.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information concerning Principal Accounting Fees and Services is set forth by the Company under the heading “Proposal 2 - Independent Registered Public Accounting Firm” in the Company’s definitive Proxy Statement for its Annual Meeting of Shareholders to be held on June 3, 2011, 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 2010 fiscal year.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as a part of this report:
1.
Index to Financial Statements:
AmBase Corporation and Subsidiaries:
Page
Report of Marcum LLP, Independent Registered Public Accounting Firm
Report of UHY LLP, Independent Registered Public Accounting Firm
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Index to Financial Statements Schedules:
Schedule III - Real Estate and Accumulated Depreciation
(b) 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, November 9, 2005, and November 10, 2010), (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, the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2005, and the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010, respectively).
10.A
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 16, 2008).
10.B
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).
10.C
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).
10.D
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, (incorporated by reference to Exhibit 10H to the Company’s Annual Report on Form 10-K for the year ending December 31, 2005), and as amended January 1, 2008, (incorporated by referenced to Exhibit 10E to the Company’s Annual Report on Form 10-K for the year ending December 31, 2007).
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.
23.1
Consent of Marcum LLP, Independent Registered Public Accounting Firm.
23.2
Consent of UHY LLP, 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 30, 2011
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 Officer
Chief Executive Officer and Director and Controller
Date: March 30, 2011 (Principal Financial and Accounting Officer)
Date: March 30, 2011
/s/ JERRY Y. CARNEGIE /s/ SALVATORE TRANI
Director Director
Date: March 30, 2011 Date: March 30, 2011
AMBASE CORPORATION AND SUBSIDIARIES
SCHEDULE III. REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2010
(dollars in thousands)
[Additional columns below]
[Continued from above table, first column(s) repeated]
COLUMN A
COLUMN F
COLUMN G
COLUMN H
COLUMN I
Description
Accumulated Depreciation
Date Constructed
Date Acquired
Life on Which Depreciated Latest Income Statement
Office Building:
Greenwich, CT
$
Apr.-01
39 years
Total
$
[a] Reconciliation of total real estate carrying value is as follows:
Year Ended December 31, 2010
Year Ended December 31, 2009
Year Ended December 31, 2008
Balance at beginning of year
$
2,454
$
2,454
$
2,454
Improvements
-
-
-
Acquisitions
-
-
-
Disposition
-
-
-
Balance at end of year
$
2,454
$
2,454
$
2,454
Total cost for federal tax purposes at end of each year
$
2,454
$
2,454
$
2,454
[b] Reconciliation of accumulated depreciation as follows:
Balance at beginning of year
$
$
$
Depreciation expense
Dispositions
-
-
-
Balance at end of year
$
$
$
DIRECTORS AND OFFICERS
Board of Directors
Richard A. Bianco Jerry Y. Carnegie Salvatore Trani
Chairman, President and Private Investor Executive Vice President
Chief Executive Officer BGC Partners, L.P.
AmBase Corporation
AmBase Officers
Richard A. Bianco John P. Ferrara Joseph R. Bianco
Chairman, President and Vice President, Chief Financial Officer Treasurer
Chief Executive Officer and Controller
INVESTORINFORMATION
Annual Meeting of Stockholders
The 2011 Annual Meeting is currently scheduled to be held at 9:00 a.m. Eastern Time, on Friday, June 3, 2011, at:
Hyatt Regency Hotel
1800 East Putnam Avenue
Greenwich, CT 06870
Corporate Headquarters
AmBase Corporation
100 Putnam Green, 3rd Floor
Greenwich, CT 06830-6027
(203) 532-2000