<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
------------------
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-9380
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CAPITAL PROPERTIES, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Rhode Island 05-0386287
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
100 Dexter Road, East Providence, Rhode Island 02914
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(401) 435-7171
- --------------------------------------------------------------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
----- -----
State the number of shares outstanding of each of the Issuer's classes common
equity, as of the latest practicable date:
As of November 9, 1999, the Issuer had 3,000,000 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes No X
----- -----
<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS
CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Properties and equipment (net of accumulated depreciation) $ 9,261,000
Cash and cash equivalents ................................ 4,322,000
Receivables:
Tenant property tax reimbursements .................... 203,000
Other ................................................. 24,000
Accrued rental income .................................... 511,000
Prepaid and other ........................................ 68,000
-----------
$14,389,000
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses:
Property taxes ...................................... $ 612,000
Income taxes ........................................ 75,000
Other ............................................... 118,000
Deferred income taxes ................................. 1,160,000
-----------
1,965,000
-----------
Contingencies (Note 3)
Shareholders' equity:
Common stock, $1 par; authorized, issued
and outstanding 3,000,000 shares .................... 3,000,000
Capital in excess of par .............................. 8,828,000
Retained earnings ..................................... 596,000
-----------
12,424,000
-----------
$14,389,000
===========
</TABLE>
See notes to consolidated financial statements.
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CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- ---------------------------
1999 1998 1999 1998
-------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Income:
Revenues:
Leasing ......................... $514,000 $ 472,000 $1,561,000 $ 1,389,000
Petroleum storage facilities, net
of cost of product sold for the
three and nine months ended
September 30, 1999 of $9,000
and $148,000, respectively .... 271,000 233,000 895,000 396,000
-------- ----------- ---------- -----------
785,000 705,000 2,456,000 1,785,000
Interest:
Providence and Worcester
Railroad Company ............. 98,000
Other ........................... 54,000 55,000 151,000 114,000
-------- ----------- ---------- -----------
839,000 760,000 2,607,000 1,997,000
-------- ----------- ---------- -----------
Expenses:
Expenses applicable to:
Leasing ......................... 316,000 280,000 905,000 864,000
Petroleum storage facilities .... 184,000 378,000 575,000 756,000
General and administrative ........ 212,000 208,000 645,000 813,000
-------- ----------- ---------- -----------
712,000 866,000 2,125,000 2,433,000
-------- ----------- ---------- -----------
Income (loss) before income taxes .... 127,000 (106,000) 482,000 (436,000)
Income tax expense (benefit) ......... 56,000 (49,000) 201,000 (174,000)
-------- ----------- ---------- -----------
Net income (loss) .................... $ 71,000 $ (57,000) $ 281,000 (262,000)
======== =========== ========== ===========
Basic earnings (loss) per
common share ......................... $ .02 $ (.02) $ .09 $ (.09)
======== =========== ========== ===========
Dividends on common stock ............ $ .03 $ -0- $ .08 $ .05
======== =========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
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CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................. $ 281,000 $ (262,000)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation ................................... 63,000 262,000
Deferred income taxes .......................... (13,000) (78,000)
Other, principally net changes in receivables,
prepaids, accounts payable and
accrued expenses .............................. 351,000 469,000
----------- -----------
Net cash provided by operating activities .......... 682,000 391,000
----------- -----------
Cash flows from investing activities:
Purchase of properties and equipment ............... (863,000) (101,000)
Proceeds from collection of note receivable,
Providence and Worcester Railroad Company ........ 3,993,000
----------- -----------
Net cash provided by (used in) investing activities (863,000) 3,892,000
----------- -----------
Cash used in financing activities, payment of
dividends .......................................... (240,000) (150,000)
----------- -----------
Increase (decrease) in cash and cash equivalents ...... (421,000) 4,133,000
Cash and cash equivalents, beginning .................. 4,743,000 793,000
----------- -----------
Cash and cash equivalents, ending ..................... $ 4,322,000 $ 4,926,000
=========== ===========
Supplemental disclosures, cash paid for income taxes .. $ 117,000 $ 79,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1. Basis of presentation:
The accompanying consolidated financial statements have been prepared by
the Company. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. In the opinion of
management, the accompanying consolidated financial statements contain all
adjustments necessary to present fairly the financial position as of
September 30, 1999 and the results of operations for the three and nine
months ended September 30, 1999 and 1998, and the cash flows for the nine
months ended September 30, 1999 and 1998.
The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year.
The Company has adopted the provisions of Statement of Financial Accounting
Standards (FAS) No. 131 (Disclosures about Segments of an Enterprise and
Related Information) which changes the manner in which the Company
determines its operating business segments. FAS No. 131 defines operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
The provisions of FAS No. 131 result in the Company's reporting two
operating segments:
* the leasing of certain of its real estate interests in downtown
Providence, Rhode Island, and locations along interstate and primary
highways in Rhode Island and Massachusetts for outdoor advertising
purposes; and
* the operation of its petroleum storage facilities (the Facilities) in
East Providence, Rhode Island.
2. Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements. Estimates also affect the reported amounts of income
and expenses during the reporting period. Actual results could differ from
those estimates.
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3. Litigation with the State of Rhode Island and the City of Providence:
Condemnation case:
On January 16, 1987, the Company entered into an Agreement with the State
of Rhode Island (the State) relating to the State's obligation with respect
to the condemnation of a portion of the Company's property in connection
with the proposed River Relocation in Providence, Rhode Island (CPI/State
Agreement). In November 1987, the State condemned the property and paid the
Company a condemnation award of $2,600,000. Under the CPI/State Agreement,
the Company acquired Parcel 9 in the Capital Center Project area (Disputed
Parcel) from the State and was required to return to the State a portion of
the condemnation award.
In April 1988, the Company filed a petition in the Rhode Island Superior
Court (Superior Court) for an increased condemnation award alleging that
the award paid in 1987 was inadequate. In January 1992, the Superior Court
awarded the Company an additional condemnation award of $401,000 plus
interest from the date of the condemnation. The Company had asserted in the
Superior Court that it was entitled to an additional condemnation award in
excess of $6,000,000 plus interest, and accordingly, in February 1992, the
Company appealed the decision of the Superior Court to the Rhode Island
Supreme Court (Supreme Court). In January 1994, the Supreme Court
overturned the Superior Court decision and returned the matter to the
Superior Court for a retrial of the case. The case was retried in 1995.
In May 1997, the Superior Court entered final judgment awarding
condemnation proceeds of $6,101,000 in favor of the Company and interest on
the judgment through that date of $4,552,000 (the Condemnation Judgment).
The State filed an appeal with the Supreme Court. On April 17, 1998, the
Supreme Court entered an order affirming the Condemnation Judgment of the
Superior Court. Interest continues to accrue on the judgment. The Supreme
Court expressly stated that its decision was "without prejudice to any
party seeking to enforce any contractual obligations that may be implicated
by the enforcement of the Condemnation Judgment." Under the CPI/State
Agreement, the Company may be required to return to the State a portion of
the award.
The State filed several motions and a separate action to prevent the
Company from collecting the Condemnation Judgment, which now exceeds
$11,500,000 including interest. The Superior Court denied the State's
motions and ordered the State to pay the Condemnation Judgment by August
14, 1998. The State filed an appeal with the Supreme Court. In December
1998, the Supreme Court directed that the separate action filed by the
State, together with other disputes between the Company, the State and the
City of Providence, be consolidated before and decided by a single justice
of the Superior Court. Each of the four consolidated cases decided by the
single justice on July 13, 1999, is described below.
Property tax disputes with the City of Providence:
During 1995, the Company received notice from the City of Providence (the
City) of an increase in the assessed values of several of its parcels
within Capital Center. The increase in the assessed values was not the
result of a city-wide revaluation, pertained to 1995 and subsequent years,
and resulted in an annual increase in property taxes of $265,000. The
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Company filed administrative appeals for 1995 and 1996 but elected to make
property tax payments as due pending the outcome of the appeals. During the
fourth quarter of 1996, the City reduced the assessed value of one of the
parcels, resulting in an abatement of property taxes of $107,000 for 1995
and a reduction in the tax of $115,000 for 1996 and subsequent years. The
Company is unable to determine if the remaining appeals will result in an
abatement of the property taxes for 1995 and subsequent years.
On August 18, 1997, the Company received from the City real property tax
bills for taxes assessed as of December 31, 1996 reflecting an unexpected
200% increase in the assessed values of a majority of the Company's parcels
within Capital Center, resulting in an annual increase in property tax
expense of approximately $1,370,000. This increase was not part of a
city-wide revaluation.
On August 21, 1997, the Company received from the City real property tax
bills purporting to assess taxes for assessment years ending December 31,
1990 through December 31, 1995, based upon a $42,000,000 retroactive
increase in the assessed values of these same properties. These increases
were not part of a city-wide revaluation. The aggregate amount of such
taxes as billed was approximately $7,100,000, which amount did not include
any interest.
The Company believes that the changes in the assessed values is related to
the May 1997 Condemnation Judgment. The Company believes that the increase
in the assessed values for 1997 and prior periods are illegal and on August
27, 1997 filed a lawsuit against the City in the Superior Court.
On October 14, 1997, the Company received from the City real property tax
bills for the second quarter of 1997 indicating interest due on the 1996
assessment of $76,000 and interest due on the purported assessed taxes for
the years 1990 through 1995 of $3,300,000. The City asserts that the
parcels subject to the retroactive assessment were under-assessed in the
prior assessment periods.
On November 14, 1997, the Company filed administrative appeals of the 1997
real property tax bills.
In August 1998, the Company received from the City real property tax bills
for taxes assessed as of December 31, 1997, which taxes were based upon the
assessed valuations as of December 31, 1996. The Company has appealed these
assessments and on October 16, 1998, filed a lawsuit against the City in
the Superior Court claiming that the increased assessments for 1998 are
illegal. In December 1998, the Supreme Court directed that the property tax
disputes with the City, title to the Disputed Parcel, and the condemnation
case previously discussed be heard by a single justice of the Superior
Court.
In August 1999, the Company received from the City real property tax bills
for taxes assessed as of December 31, 1998, which taxes are based upon the
assessed valuations as of December 31, 1996. The Company filed
administrative appeals from the 1999 taxes on September 15, 1999, and on
September 27, 1999, filed a lawsuit against the City in the Superior Court
claiming that the increased assessments for 1999 are illegal.
The last real property tax bills were received by the Company in October
1999 from the City indicating that there remains unpaid taxes of
$13,227,000 and interest thereon of $6,281,000
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<PAGE> 8
for assessment dates of December 31, 1990 through 1998. Interest continues
to accrue at the rate of 1 percent per month.
The Company is reporting for financial statement purposes (and paying)
property taxes based on the 1994 and 1995 assessed valuations while it
pursues its lawsuits and its administrative appeals. City of Providence
property tax expense reported on the accompanying consolidated statements
of income (loss) totaled $223,000 and $171,000 for the three months ended
September 30, 1999 and 1998, respectively; and $613,000 and $583,000 for
the nine months ended September 30, 1999 and 1998, respectively.
On July 13, 1999, the Superior Court ruled in favor of the Company and
found that both the City's new tax assessments for assessment years 1997
and 1998 and back taxes for assessment years 1990-1996 are illegal and
void. The Superior Court entered judgment in favor of the Company and sent
the case to the Supreme Court for review.
The Company, upon consultation with counsel, believes that the Superior
Court's decision with respect to these assessments will be sustained on
review; however, such proceedings can be protracted and costly, and there
can be no assurance that the Company will be successful. The failure of the
Company to prevail in the proceedings contesting the retroactive increase
in assessed values would have a material adverse effect on the Company's
results of operations and financial condition and, while the Company
believes, upon consultation with counsel, that the likelihood of such
failure is remote, if a court were to require the Company to pay the
retroactive assessments and related interest, the Company could be forced
to seek the protection of the bankruptcy courts.
Dispute over ownership of Disputed Parcel:
Pursuant to the terms of an agreement dated January 1987 between the City
and the State (City/State Agreement), the City was obligated to convey the
Disputed Parcel to the State. As discussed above under the heading
"Condemnation Case," pursuant to the CPI/State Agreement, the State was
obligated to reconvey the Disputed Parcel to the Company. In 1989, the City
conveyed the Disputed Parcel to the State, and the State reconveyed the
Disputed Parcel to the Company. Contemporaneously, the Company purchased a
title insurance policy in the amount of $1,600,000 covering the Disputed
Parcel.
The City now claims that its execution of the City/State Agreement was
invalid, that its conveyance of the Disputed Parcel to the State was void,
and hence the City is the true owner of the Disputed Parcel. Moreover, in
December 1998, the City adopted an ordinance authorizing the Providence
Redevelopment Agency to condemn the Disputed Parcel. The Company is
contesting both the City's claim of ownership and the City's attempt to
condemn the Disputed Parcel.
The Company's carrying value of the Disputed Parcel is $57,000. The
Disputed Parcel's assessed value was increased to $7,909,000 by the City as
more fully discussed above under the heading "Property Tax Disputes with
the City of Providence." The last real property tax bill relating to the
Disputed Parcel received in October 1999 from the City indicates that the
unpaid taxes and interest total approximately $2,735,000 through that date.
This dispute with the City was included in the matters heard by the single
justice of the Superior Court as directed by the Supreme Court. On July 13,
1999, the Superior Court
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<PAGE> 9
ruled in favor of the Company and found that the Company is the rightful
owner of the Disputed Parcel and that the City has no right to condemn the
Disputed Parcel and therefore the ordinance authorizing the condemnation is
invalid. The Superior Court entered judgment in favor of the Company and
sent the case to the Supreme Court for review.
Dispute regarding the payment of the Condemnation Award:
On May 26, 1998, the State filed an action in the Superior Court in which
it maintains that it is not responsible for paying any portion of the
Condemnation Judgment to the Company. The Supreme Court ordered the
Superior Court to determine these claims on an expedited basis. The State
alleged, among other things, that (1) its conveyance of the Disputed Parcel
to the Company relieves it from the obligation to pay one-half of the
Condemnation Judgment and (2) the City, not the State, is obligated to pay
the other half of the Condemnation Judgment.
On July 13, 1999 the Superior Court ruled in favor of the Company and found
that the State must pay the entire Condemnation Judgment to the Company.
The Superior Court left open the possibility that the Company will have to
return some portion of the Condemnation Judgment to the State following the
State's payment of the entire amount. The Superior Court entered judgment
in favor of the Company and sent the case, sua sponte, to the Supreme Court
for review.
Appeal of the consolidated cases:
The Superior Court's decisions in each of the four consolidated cases are
currently being reviewed by the Rhode Island Supreme Court. These matters
have been fully briefed and oral argument is scheduled for November 9,
1999.
4. Properties and equipment:
<TABLE>
<S> <C>
Properties on lease or held for lease:
Land and land improvements..................... $4,207,000
Parking garage................................. 2,500,000
----------
6,707,000
----------
Petroleum storage facilities:
Land........................................... 2,201,000
Buildings and structures....................... 501,000
Tanks and equipment............................ 4,175,000
Construction in progress....................... 748,000
----------
7,625,000
----------
Office equipment.................................. 90,000
----------
4,422,000
----------
Less accumulated depreciation:
Properties on lease or held for lease.......... 723,000
Petroleum storage facilities................... 4,353,000
Office equipment............................... 85,000
----------
5,161,000
----------
$9,261,000
==========
</TABLE>
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The Company is constructing a new expanded truck rack at the petroleum
storage facilities which will be fully automated and will have both top and
bottom loading capabilities at an estimated cost of $2,000,000. It is
anticipated that the rack will be completed during the first quarter of
2000.
5. Note receivable, Providence and Worcester Railroad Company:
In 1988, in accordance with a plan of distribution, the Company transferred
the ownership of Providence and Worcester Railroad Company (Railroad) to
the Company's shareholders. The Company and Railroad have a common
controlling shareholder. As part of the plan, the Company received a
promissory note in the amount of $9,377,000 payable over a period of twenty
years with interest at 12% per year, (reduced to 10% in 1995) prepayable at
any time without penalty. In March 1998, Railroad prepaid the note in full.
6. Description of leasing arrangements:
At September 30, 1999, the Company had entered into long-term land leases
for six separate land parcels, three of which will not commence until
construction begins. The Company also leases various parcels of land for
outdoor advertising purposes for remaining terms of up to 30 years and for
public parking purposes under short-term cancelable leases.
For those leases with scheduled rent increases, the cumulative excess of
straight-line over contractual rentals (considering scheduled rent
increases over the 30 to 149 year terms of the leases) amounted to
$12,282,000 through September 30, 1999. Management has concluded that a
portion of the excess of straight-line over contractual rentals ($511,000
at September 30, 1999) is realizable when payable over the terms of the
leases.
7. Income taxes:
Deferred income taxes are recorded based upon differences between financial
statement and tax carrying amounts of assets and liabilities. The tax
effects of temporary differences which give rise to deferred tax assets and
liabilities at September 30, 1999 were as follows:
<TABLE>
<S> <C>
Gross deferred tax liabilities:
Property having a financial statement basis
in excess of its tax basis................................ $1,191,000
Accrued rental income....................................... 204,000
----------
1,395,000
Gross deferred tax assets, principally professional fees
in connection with condemnation case (see Note 3)........... (235,000)
----------
$1,160,000
==========
</TABLE>
8. Petroleum storage facilities:
During 1997 and the first half of 1998, the Company purchased petroleum
products which it stored and resold at the Facilities and leased storage
tanks under short-term arrangements for the warehousing of petroleum
products. Effective September 1, 1998, the Company entered into an
arrangement with a petroleum company (Petroleum Company) under which the
Company operates the entire Facilities for the Petroleum Company. The
Company is responsible for labor, insurance, property taxes and other
operating expenses. The Company and the Petroleum Company entered into an
agreement effective May 1, 1999, extending the
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arrangement for an additional three-year period plus options to extend on
an annual basis with a minimum monthly fee of $67,000, increasing 4.5%
annually during the extended term.
9. Operating segment disclosures:
The Company operates in two segments: (1) Leasing and (2) Petroleum Storage
Facilities.
The Leasing segment consists of the long-term leasing of certain of its
real estate interests in downtown Providence, Rhode Island (to tenants that
have constructed buildings thereon) and locations along interstate and
primary highways in Rhode Island and Massachusetts (to a company which has
constructed outdoor advertising boards thereon). The Company anticipates
that the future development of its remaining properties will consist
primarily of long-term ground leases. Pending this development, the Company
leases these parcels and an adjacent parking garage for public parking
purposes under short-term cancelable leasing arrangements.
The Petroleum Storage Facilities segment consists of operating the
Facilities in East Providence for the Petroleum Company which stores and
distributes petroleum products. The Company and the Petroleum Company
entered into an agreement effective May 1, 1999, extending the current
arrangement for an additional three-year period plus options to extend on
an annual basis.
The principal difference between the two segments relates to the nature of
the operations. The tenants in the Leasing segment incur substantially all
of the development and operating costs of the asset constructed on the
Company's land, whereas the Company is responsible for the operating and
maintenance expenditures of the Facilities.
The Company makes decisions relative to the allocation of resources and
evaluates performance based on income before income taxes, excluding
interest and other income, and certain corporate expenses.
There are no inter-segment revenues. The Company did not incur interest
expense during the nine months ended September 30, 1999 and 1998.
The following financial information is used by the chief operating decision
maker for making operating decisions and assessing performance of the
Company's segments:
<TABLE>
<CAPTION>
Petroleum
Storage
Leasing Facilities Total
----------- ----------- ----------
<S> <C> <C> <C>
Nine months ended September 30, 1999:
Revenues:
Contractual ....................... $ 1,564,000 $ 895,000 $2,459,000
Noncash, excess of contractual over
straight-line rentals ........... (3,000) (3,000)
----------- ----------- ----------
$ 1,561,000 $ 895,000 $2,456,000
=========== =========== ==========
Depreciation ......................... $ 48,000 $ 11,000 $ 59,000
=========== =========== ==========
Income before income taxes ........... $ 656,000 $ 320,000 $ 976,000
=========== =========== ==========
</TABLE>
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<PAGE> 12
<TABLE>
<CAPTION>
Petroleum
Storage
Leasing Facilities Total
---------- ----------- ----------
<S> <C> <C> <C>
Nine Months ended September 30, 1998:
Revenues:
Contractual ......................... $1,387,000 $ 396,000 $1,783,000
Noncash, excess of straight-line over
contractual rentals .............. 2,000 2,000
---------- ----------- ----------
$1,389,000 $ 396,000 $1,785,000
========== =========== ==========
Depreciation ............................... $ 50,000 $ 206,000 $ 256,000
========== =========== ==========
Income (loss) before income taxes .......... $ 525,000 $ (360,000) $ 165,000
========== =========== ==========
</TABLE>
The following is a reconciliation of the segment information to the amounts
reported in the accompanying consolidated financial statements for the nine
months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Income:
Revenues for operating segments ...................... $ 2,456,000 $ 1,785,000
Interest income ...................................... 151,000 212,000
----------- -----------
Total consolidated income .......................... $ 2,607,000 $ 1,997,000
=========== ===========
Depreciation:
Depreciation for operating segments .................. $ 59,000 $ 256,000
Unallocated corporate depreciation ................... 4,000 6,000
----------- -----------
Total consolidated depreciation .................... $ 63,000 $ 262,000
=========== ===========
Income before income taxes:
Income for operating segments ........................ $ 976,000 $ 165,000
Interest income ...................................... 151,000 212,000
Unallocated corporate expenses ....................... (645,000) (813,000)
----------- -----------
Total consolidated income (loss) before income taxes $ 482,000 $ (436,000)
=========== ===========
</TABLE>
10. Dispute with Amtrak:
The Company is in dispute with the National Railroad Passenger Corporation
(Amtrak) concerning various trespasses. As part of the Capital Center
Project, the Company, State, City and Amtrak each conveyed parcels of land
in Capital Center so that each party had the land it needed for its
designated functions within Capital Center. As part of this arrangement,
the Company was conveyed approximately 1.9 acres of air rights over
Amtrak's Northeast Corridor 19.3 feet above the top rail within what is now
designated as Parcel 6. Following that conveyance, the railroad station and
the adjacent parking garage (owned by the Company) were constructed by the
Federal Railroad Administration. Many of the facilities needed to service
the railroad station were built within the confines of Parcel 7A (the
garage parcel). Over the years, the Company did not charge Amtrak for this
intrusion on its property; and over the years Amtrak assumed the cost of
electricity provided to the parking garage. In 1997, Amtrak unilaterally
refused to pay for the electricity, and the Company brought suit in the
United States District Court for the District of Rhode Island
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<PAGE> 13
(U. S. District Court) seeking an order requiring Amtrak to remove its
facilities from Parcel 7A.
In the fall of 1998, Amtrak erected towers within the air right over Parcel
6, the tops of which vary in height between 27 and 31 feet above the
tracks. Additionally, Amtrak erected a signal bridge within the Company's
air rights, all as part of the electrification of the Northeast Corridor.
The Company amended its complaint against Amtrak to include these
trespasses into the Company's air rights.
On July 19, 1999, Amtrak condemned all the air rights owned by the Company
for a three-year temporary easement. Amtrak deposited $335,000 in the U. S.
District Court, the sum estimated by Amtrak to be just compensation for the
property taken, which amount was received by the Company in October 1999.
On July 30, 1999, Amtrak condemned a portion of Parcel 7A (the parking
garage parcel) upon which Amtrak had placed improvements, for a permanent
easement. Amtrak deposited $60,000 in the U. S. District Court, the sum
estimated by Amtrak to be just compensation for the property taken, which
amount was received by the Company in October 1999.
Following disbursement of the funds from the Court, the initial litigation
between Amtrak and the Company and the Amtrak condemnation cases were
consolidated for trial. Amtrak has petitioned the Court to bring the State
of Rhode Island Department of Transportation into the litigation as a
third-party defendant on the grounds that they are responsible, in part,
for the costs of condemnation.
The Company is unable to determine from the Court filings what periods are
covered by the condemnations and cannot report the condemnation proceeds as
income until management is able to clarify same.
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CAPITAL PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION:
In 1988, in accordance with a plan of distribution, the Company transferred the
ownership of Providence and Worcester Railroad Company (Railroad) to the
Company's shareholders. The Company and Railroad have a common controlling
shareholder. As part of the plan, the Company received a promissory note in the
amount of $9,377,000 payable over a period of twenty years with interest at 12%
per year, (reduced to 10% in 1995) prepayable at any time without penalty. In
March 1998, Railroad prepaid the note in full.
The Company's principal assets consist of land, a public parking garage,
petroleum storage facilities (the Facilities) and outdoor advertising sites. A
significant portion of the land consists of approximately 20.5 acres, including
1.9 acres of air rights, in downtown Providence, Rhode Island, held for
development. At September 30, 1999, the Company is earning revenue from
long-term land leases for three separate land parcels. The tenants of each
parcel have constructed buildings which are substantially occupied.
The Company has entered into land leases for three additional land parcels with
terms of 95, 145 and 149 years. Under the 95-year land lease, the developer
proposes to construct a hotel containing approximately 265 suites with parking.
Under the 145-year land lease, the developer proposes to construct an apartment
complex containing approximately 250 individual units with underground parking.
Under the 149-year land lease, the developer proposes to construct a building of
approximately 350,000 square feet of commercial space and a minimum of 200
public parking spaces. All leases provide a period of time within which the
developer may perform its due diligence, seek the approval of the plans for its
complex from the Capital Center Commission and enter into a tax stabilization
agreement with the City of Providence. There can be no assurance that the
developers, individually or collectively, will be able to satisfy the conditions
precedent to proceeding with the developments. Each developer's ability to
obtain a tax stabilization agreement with the City of Providence may be
adversely affected by the litigation between the City and the Company with
respect to prior year taxes as discussed below. The Company is unable to
determine at this time when construction will begin and therefore the time at
which the term of each lease will commence.
The Company is engaged in discussions concerning the possible development of the
remaining parcels but is unable to predict when leases on these parcels will
commence. However, the Company will continue to lease all available parcels
which are suitable for public surface parking under short-term cancelable
leases. The Company anticipates that future development of the remaining
properties will consist primarily of long-term ground leases under which the
significant portion of future rental income will not be earned until the
buildings are completed by the developers and occupied.
Effective September 1, 1998, the Company entered into an arrangement with a
petroleum company (Petroleum Company) under which the Company operates the
entire Facilities for the Petroleum Company. The Company is responsible for
labor, insurance, property taxes and other operating expenses. The Company and
Petroleum Company have entered into an agreement
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effective May 1, 1999, extending the arrangement for an additional three-year
term plus options to extend on an annual basis with a minimum monthly fee of
$67,000, increasing 4.5% annually during the extended term.
The Company is constructing a new expanded truck rack at the Facilities which
will be fully automated and will have both top and bottom loading capabilities
at an estimated cost of $2.0 million. It is anticipated that the rack will be
completed during the first quarter of 2000. The Company is paying for the
construction from available cash.
In management's opinion, the Company will continue to be able to generate
adequate amounts of cash to meet substantially all of its expenditures.
On January 16, 1987, the Company entered into an Agreement with the State of
Rhode Island (the State) relating to the State's obligation with respect to the
condemnation of a portion of the Company's property in connection with the
proposed River Relocation in Providence, Rhode Island (CPI/State Agreement). In
November 1987, the State condemned the property and paid the Company a
condemnation award of $2,600,000. Under the CPI/State Agreement, the Company
acquired Parcel 9 in the Capital Center Project area (Disputed Parcel) from the
State and was required to return to the State a portion of the condemnation
award.
In April 1988, the Company filed a petition in the Rhode Island Superior Court
(Superior Court) for an increased condemnation award alleging that the award
paid in 1987 was inadequate. In January 1992, the Superior Court awarded the
Company an additional condemnation award of $401,000 plus interest from the date
of the condemnation. The Company had asserted in the Superior Court that it was
entitled to an additional condemnation award in excess of $6,000,000 plus
interest, and accordingly, in February 1992, the Company appealed the decision
of the Superior Court to the Rhode Island Supreme Court (Supreme Court). In
January 1994, the Supreme Court overturned the Superior Court decision and
returned the matter to the Superior Court for a retrial of the case. The case
was retried in 1995.
In May 1997, the Superior Court entered final judgment awarding condemnation
proceeds of $6,101,000 in favor of the Company and interest on the judgment
through that date of $4,552,000 (the Condemnation Judgment). The State filed an
appeal with the Supreme Court. On April 17, 1998, the Supreme Court entered an
order affirming the Condemnation Judgment of the Superior Court. Interest
continues to accrue on the judgment. The Supreme Court expressly stated that its
decision was "without prejudice to any party seeking to enforce any contractual
obligations that may be implicated by the enforcement of the Condemnation
Judgment." Under the CPI/State Agreement, the Company may be required to return
to the State a portion of the award.
The State filed several motions and a separate action to prevent the Company
from collecting the Condemnation Judgment, which now exceeds $11,500,000
including interest. The Superior Court denied the State's motions and ordered
the State to pay the Condemnation Judgment by August 14, 1998. The State filed
an appeal with the Supreme Court. In December 1998, the Supreme Court directed
that the separate action filed by the State, together with other disputes
between the Company, the State and the City of Providence, be consolidated
before and decided by a single justice of the Superior Court. Each of the four
consolidated cases decided by the single justice on July 13, 1999, is described
below.
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During 1995, the Company received notice from the City of Providence (the City)
of an increase in the assessed values of several of its parcels within Capital
Center. The increase in the assessed values was not the result of a city-wide
revaluation, pertained to 1995 and subsequent years, and resulted in an annual
increase in property taxes of $265,000. The Company filed appeals for 1995 and
1996 but elected to make property tax payments as due pending the outcome of the
appeals. During the fourth quarter of 1996, the City reduced the assessed value
of one of the parcels, resulting in an abatement of property taxes of $107,000
for 1995 and a reduction in the tax of $115,000 for 1996 and subsequent years.
The Company is unable to determine if the remaining appeals will result in an
abatement of the property taxes for 1995 and subsequent years.
On August 18, 1997, the Company received from the City real property tax bills
for taxes assessed as of December 31, 1996 reflecting an unexpected 200%
increase in the assessed values of a majority of the Company's parcels within
Capital Center, resulting in an annual increase in property tax expense of
approximately $1,370,000. This increase was not part of a city-wide revaluation.
On August 21, 1997, the Company received from the City real property tax bills
purporting to assess taxes for assessment years ending December 31, 1990 through
December 31, 1995, based upon a $42,000,000 retroactive increase in the assessed
values of these same properties. These increases were not part of a city-wide
revaluation. The aggregate amount of such taxes as billed was approximately
$7,100,000, which amount did not include any interest.
The Company believes that the changes in the assessed values is related to the
May 1997 Condemnation Judgment. The Company believes that the increase in the
assessed values for 1997 and prior periods are illegal and on August 27, 1997
filed a lawsuit against the City in the Superior Court.
On October 14, 1997, the Company received from the City real property tax bills
for the second quarter of 1997 indicating interest due on the 1996 assessment of
$76,000 and interest due on the purported assessed taxes for the years 1990
through 1995 of $3,300,000. The City asserts that the parcels subject to the
retroactive assessment were under-assessed in the prior assessment periods.
On November 14, 1997, the Company filed administrative appeals of the 1997 real
property tax bills.
In August 1998, the Company received from the City real property tax bills for
taxes assessed as of December 31, 1997, which taxes are based upon the assessed
valuations as of December 31, 1996. The Company has appealed these assessments
and on October 16, 1998, filed a lawsuit against the City in the Superior Court
claiming that the increased assessments for 1998 are illegal. In December 1998,
the Supreme Court directed that the property tax disputes with the City, title
to the Disputed Parcel, and the condemnation case previously discussed be heard
by a single justice of the Superior Court.
In August 1999, the Company received from the City real property tax bills for
taxes assessed as of December 31, 1998, which taxes are based upon the assessed
valuations as of December 31, 1996. The Company filed administrative appeals
from the 1999 taxes on September 15, 1999, and on September 27, 1999, filed a
lawsuit against the City in the Superior Court claiming that the increased
assessments for 1999 are illegal.
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The last real property tax bills were received by the Company in October 1999
from the City indicating that there remains unpaid taxes of $13,227,000 and
interest thereon of $6,281,000 for assessment dates of December 31, 1990 through
1998. Interest continues to accrue at the rate of 1 percent per month.
On July 13, 1999, the Superior Court ruled in favor of the Company and found
that both the City's new tax assessments for assessment years 1997 and 1998 and
back taxes for assessment years 1990-1996 are illegal and void. The Superior
Court entered judgment in favor of the Company and sent the case to the Supreme
Court for review.
The Company, upon consultation with counsel, believes that the Superior Court's
decision with respect to these assessments will be sustained on review; however,
such proceedings can be protracted and costly, and there can be no assurance
that the Company will be successful. The failure of the Company to prevail in
the proceedings contesting the retroactive increase in assessed values would
have a material adverse effect on the Company's results of operations and
financial condition and, while the Company believes, upon consultation with
counsel, that the likelihood of such failure is remote, if a court were to
require the Company to pay the retroactive assessments and related interest, the
Company could be forced to seek the protection of the bankruptcy courts.
Pursuant to the terms of an agreement dated January 1987 between the City and
the State (City/State Agreement), the City was obligated to convey the Disputed
Parcel to the State. As discussed above, pursuant to the CPI/State Agreement,
the State was obligated to reconvey the Disputed Parcel to the Company. In 1989,
the City conveyed the Disputed Parcel to the State, and the State reconveyed the
Disputed Parcel to the Company. Contemporaneously, the Company purchased a title
insurance policy in the amount of $1,600,000 covering the Disputed Parcel.
The City now claims that its execution of the City/State Agreement was invalid,
that its conveyance of the Disputed Parcel to the State was void, and hence the
City is the true owner of the Disputed Parcel. Moreover, in December 1998, the
City adopted an ordinance authorizing the Providence Redevelopment Agency to
condemn the Disputed Parcel.
The Company is contesting both the City's claim of ownership and the City's
attempt to condemn the Disputed Parcel.
The Company's carrying value of the Disputed Parcel is $57,000. The Disputed
Parcel's assessed value was increased to $7,909,000 by the City as more fully
discussed above. The last real property tax bill relating to the Disputed Parcel
received in October 1999 from the City indicates that the unpaid taxes and
interest total approximately $2,735,000 through that date.
This dispute with the City was included in the matters heard by the single
justice of the Superior Court as directed by the Supreme Court. On July 13,
1999, the Superior Court ruled in favor of the Company and found that the
Company is the rightful owner of the Disputed Parcel and that the City has no
right to condemn the Disputed Parcel and therefore the ordinance authorizing the
condemnation is invalid. The Superior Court entered judgment in favor of the
Company and sent the case to the Supreme Court for review.
On May 26, 1998, the State filed an action in the Superior Court in which it
maintains that it is not responsible for paying any portion of the Condemnation
Judgment to the Company. The
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Supreme Court ordered the Superior Court to determine these claims on an
expedited basis. The State alleged, among other things, that (1) its conveyance
of the Disputed Parcel to the Company relieves it from the obligation to pay
one-half of the Condemnation Judgment and (2) the City, not the State, is
obligated to pay the other half of the Condemnation Judgment.
On July 13, 1999 the Superior Court ruled in favor of the Company and found that
the State must pay the entire Condemnation Judgment to the Company. The Superior
Court left open the possibility that the Company will have to return some
portion of the Condemnation Judgment to the State following the State's payment
of the entire amount. The Superior Court entered judgment in favor of the
Company and sent the case, sua sponte, to the Supreme Court for review.
The Superior Court's decisions in each of the four consolidated cases are
currently being reviewed by the Rhode Island Supreme Court. These matters have
been fully briefed and oral argument is scheduled for November 9, 1999. The
Company is unable to determine when and what action the Supreme Court will take.
The Company is in dispute with the National Railroad Passenger Corporation
(Amtrak) concerning various trespasses. As part of the Capital Center Project,
the Company, State, City and Amtrak each conveyed parcels of land in Capital
Center so that each party had the land it needed for its designated functions
within Capital Center. As part of this arrangement, the Company was conveyed
approximately 1.9 acres of air rights over Amtrak's Northeast Corridor 19.3 feet
above the top rail within what is now designated as Parcel 6. Following that
conveyance, the railroad station and the adjacent parking garage (owned by the
Company) were constructed by the Federal Railroad Administration. Many of the
facilities needed to service the railroad station were built within the confines
of Parcel 7A (the garage parcel). Over the years, the Company did not charge
Amtrak for this intrusion on its property; and over the years Amtrak assumed the
cost of electricity provided to the parking garage. In 1997, Amtrak unilaterally
refused to pay for the electricity, and the Company brought suit in the United
States District Court for the District of Rhode Island (U. S. District Court)
seeking an order requiring Amtrak to remove its facilities from Parcel 7A.
In the fall of 1998, Amtrak erected towers within the air right over Parcel 6,
the tops of which vary in height between 27 and 31 feet above the tracks.
Additionally, Amtrak erected a signal bridge within the Company's air rights,
all as part of the electrification of the Northeast Corridor. The Company
amended its complaint against Amtrak to include these trespasses into the
Company's air rights.
On July 19, 1999, Amtrak condemned all the air rights owned by the Company for a
three-year temporary easement. Amtrak deposited $335,000 in the U. S. District
Court, the sum estimated by Amtrak to be just compensation for the property
taken, which amount was received by the Company in October 1999.
On July 30, 1999, Amtrak condemned a portion of Parcel 7A (the parking garage
parcel) upon which Amtrak had placed improvements, for a permanent easement.
Amtrak deposited $60,000 in the U. S. District Court, the sum estimated by
Amtrak to be just compensation for the property taken, which amount was received
by the Company in October 1999.
Following disbursement of the funds from the Court, the initial litigation
between Amtrak and the Company and the Amtrak condemnation cases were
consolidated for trial. Amtrak has
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petitioned the Court to bring the State of Rhode Island Department of
Transportation into the litigation as a third-party defendant on the grounds
that they are responsible, in part, for the costs of condemnation.
The Company is unable to determine from the Court filings what periods are
covered by the condemnations and cannot report the condemnation proceeds as
income until management is able to clarify same.
The Company has determined that the "Year 2000" issue will not materially affect
its business, financial condition or results of operations. The Company employs
nine people. Substantially all of the leasing revenue is in the form of fixed
monthly payments, and the operation of the Facilities is not dependent upon
date-sensitive equipment. Should the Company experience a problem, it is
entirely feasible to maintain its systems in a non-computer environment and
continue to operate the Facilities.
Certain portions of this report, and particularly the Management's Discussion
and Analysis of Financial Condition and Results of Operations and the Notes to
Consolidated Financial Statements, contain forward-looking statements which
represent the Company's expectations or beliefs concerning future events. The
Company cautions that these statements are further qualified by important
factors that could cause actual results to differ materially from those in the
forward-looking statements, including, without limitation, the following: the
ability of the Company to generate adequate amounts of cash; the collectibility
of the accrued rental income when due over the terms of the long-term land
leases; changes in economic conditions that may affect either the current or
future development on the Company's parcels; the final outcome of the
condemnation and property tax litigation and the dispute over the ownership of a
parcel in the Capital Center Project area; and exposure to contamination,
cleanup or similar costs associated with the operation of the Facilities.
RESULTS OF OPERATIONS:
For the three and nine months ended September 30, 1999, total income increased
10% and 31%, respectively, from the 1998 level.
For the three and nine months ended September 30, 1999, leasing revenue
increased 9% and 12%, respectively, from the 1998 levels due principally to the
renewal of short-term leases and the addition of two billboard locations. For
the three and nine months ended September 30, 1999, expenses applicable to
leasing increased 13% and 5%, respectively from the 1998 level due principally
to a increase in property taxes and an increase in legal fees in connection with
the condemnation case and the property tax disputes with the City of Providence.
For the three and nine months ended September 30, 1999, revenue from petroleum
storage facilities increased over the 1998 levels resulting principally from
income from an arrangement to operate the Facilities which commenced September
1, 1998. For the three and nine months ended September 30, 1999, expenses
applicable to petroleum storage facilities decreased 51% and 24%, respectively,
from the 1998 levels resulting principally from a decrease in repairs and
maintenance and a decrease in depreciation expense, resulting from the fact that
the tanks became fully depreciated by the end of 1998; however, depreciation
expense will increase upon the completion of the truck rack in 2000. This
decrease was offset in part by an increase in payroll and related costs as a
result of an increased number of employees.
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The decrease in total interest income in 1999 from 1998 results from Railroad's
prepaying its note in full in March 1998, which note provided for a 10% rate.
The Company is not able to invest the proceeds at comparable rates.
For the three months ended September 30, 1999, general and administrative
expenses remained approximately at the 1998 level. For the nine months ended
September 30, 1999, general and administrative expenses decreased 21% from the
1998 levels, due principally to professional fees in connection with corporate
planning matters.
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PART II
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index of Exhibits:
(3)(a) Restated articles of incorporation (incorporated by reference to
Exhibit 4.1 to the Issuer's report on Form 8A dated June 6, 1997).
(b) By-laws, as amended.
(10) Material contracts:
(a) Note from Providence and Worcester Railroad Company to Issuer
dated January 1, 1988 (incorporated by reference to Exhibit 10(a)
to the Issuer's annual report on Form 10-KSB for the year ended
December 31, 1992) as modified by Agreement dated August 16, 1995
(incorporated by reference to Exhibit 10(a) to the Issuer's
annual report on Form 10-KSB for the year ended December 31,
1995).
(b) Leases between Metropark, Ltd., and Issuer:
(i) Dated December 1, 1997 (incorporated by reference to Exhibit
10(b)(iii) to the Issuer's annual report on Form 10-KSB for
the year ended December 31, 1997).
(ii) Dated as of November 1, 1998 (incorporated by reference to
Exhibit 10(b)(ii) to the Issuer's annual report on Form
10-KSB for the year ended December 31, 1998).
(iii) Dated as of December 1, 1998 (incorporated by reference to
Exhibit 10(b)(iii) to the Issuer's annual report on Form
10-KSB for the year ended December 31, 1998).
(iv) Dated as of January 1, 1999 (incorporated by reference to
Exhibit 10(b)(iv) to the Issuer's annual report on Form
10-KSB for the year ended December 31, 1998).
(v) Dated as of January 1, 1999 (incorporated by reference to
Exhibit 10(b)(v) to the Issuer's annual report on Form
10-KSB for the year ended December 31, 1998).
(27) Financial Data Schedule for the quarter ended September 30, 1999.
(b) For the quarter ended September 30, 1999, no reports on Form 8-K were
filed.
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SIGNATURE
In accordance with the requirements of the Exchange Act, the Issuer caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAPITAL PROPERTIES, INC.
By /s/ Ronald P. Chrzanowski
-----------------------------------------
Ronald P. Chrzanowski
President
By /s/ Barbara J. Dreyer
-----------------------------------------
Barbara J. Dreyer
Treasurer and Principal Financial Officer
DATED: November 9, 1999
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Exhibit 3(b)
BY-LAWS
OF
CAPITAL PROPERTIES, INC.
(Amended April 27, 1999)
ARTICLE I
OFFICES
Section 1. The principal offices of the corporation shall be in the County
of Providence and State of Rhode Island.
Section 2. The corporation may also have offices at such other places both
within and without the State of Rhode Island as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All annual meetings of the stockholders for the election of
directors shall be held within or without the State of Rhode Island at such
place as may be fixed from time to time by the Board of Directors; at least ten
days' notice shall be given to the stockholders of the place so fixed. Meetings
of stockholders for any other purpose may be held at such time and place, within
or without the State of Rhode Island, as shall be stated in the notice of the
meeting.
Section 2. Annual meetings of stockholders, commencing with the year 1986,
shall be held on the Tuesday next preceding the last Wednesday in April, if not
a legal holiday in the State of Rhode Island, and if a legal holiday in the
State of Rhode Island, then on the secular day next following, at which they
shall elect a Board of Directors and transact such other business as may
properly be brought before the meeting.
Section 3. Written notice of the annual meeting shall be given to each
stockholder of record at least ten days before the date of the meeting.
Section 4. Special meetings of the stockholders, for any purpose or
purposes, may be called by the President and shall be called by the President or
Secretary at the request in writing of a majority of the Board of Directors.
Such request shall state the purpose or purposes of the proposed meeting.
Section 5. Written notice of any special meeting of stockholders, stating
the time, place and purpose thereof, shall be given to each stockholder of
record at least ten days before the date fixed for the meeting.
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Section 6. Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
Section 7. Stockholders representing a majority of the shares entitled to
vote, present in person or represented by proxy, shall constitute a quorum at
all meetings of the stockholders for the transaction of business. If, however,
such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders present in person or represented by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted at the meeting as originally notified.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole Board
of Directors shall be not less than five nor more than nine. Within the
foregoing limits, the number of directors to constitute the whole Board shall be
fixed by vote of the Board of Directors at any regular or special meeting of the
Board of Directors, or by the stockholders at the annual meeting. If, pursuant
to the foregoing authority, the number of directors constituting the whole Board
shall be decreased, such decrease shall not be effective with respect to the
terms of directors then holding office until the next annual meeting of
stockholders. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this Article, and each director
elected shall hold office until his successor is elected and qualified.
Section 2. Vacancies may be filled by a majority of the directors then in
office though less than a quorum, and the directors so chosen shall hold office
until the next annual election and until their successors are duly elected and
shall qualify. A vacancy or vacancies shall be deemed to exist at any time the
number of directors then in office is less than the whole Board as provided in
Section 1, above.
Section 3. The business of the corporation shall be managed by its Board of
Directors which may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the articles of incorporation
or by these by-laws directed or required to be exercised or done by the
stockholders.
Section 4. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Rhode Island.
Section 5. The Board of Directors shall hold a meeting immediately after
each annual meeting of stockholders, at which meeting they shall elect a
President, a Vice President, a Treasurer and a Secretary, provided, however,
that they may adjourn said meeting to such time as they see fit, and elect said
officers at said adjourned meeting. They may also, at any annual meeting or at
any adjournment thereof, transact any other business which may be properly
brought before them. Regular quarterly meetings of directors shall be held on
the Tuesday next
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preceding the last Wednesday in each of the months of January, July and October.
Special meetings of the directors shall be held upon the call of the Chairman of
the Board, the President, any Vice President or the Treasurer. The Secretary
shall give each director notice, by mail, telephone or telecopy, at least
twenty-four hours before any meeting, whether regular or special, of the time
and place of such meeting; provided, that in the case of necessity, such notice
may be given at such time and in such manner as the President may direct.
Section 6. At all meetings of the Board of Directors the presence of a
majority of the directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
Section 7. The Board of Directors may, by resolution passed by a majority
of the directors, designate one or more committees, each committee to consist of
three or more of the directors of the corporation, which, to the extent provided
in the resolution, shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the corporation and
may authorize the seal of the corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Section 8. The committees shall keep regular minutes of their proceedings
and report the same to the Board of Directors when required.
Section 9. The directors may be paid their expenses, if any, of attendance
at each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors, such fixed sum to be
determined by the Board of Directors. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefore.
Section 10. Any or all of the directors may be removed with or without
cause by vote of the holders of a majority of the outstanding common stock of
the Company.
ARTICLE IV
OFFICERS
Section 1. The initial officers of the corporation shall be chosen by the
incorporator or the Board of Directors and shall be a President, a Vice
President, a Secretary and a Treasurer. The offices of Treasurer and Secretary
may be held by the same person. The President shall be a director of the
corporation.
Section 2. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
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Section 3. The salaries of all officers of the corporation shall be fixed
by the Board of Directors.
Section 4. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the Board
of Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the corporation
by death, resignation, removal or otherwise shall be filled by the Board of
Directors.
Section 5. The President shall be the chief executive officer of the
corporation. He shall preside at all meetings of the Board and of the
corporation, but, in his absence, either of said bodies may elect a president
pro tem. The President shall be a member of all standing committees and shall
have general and active management of the business of the corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. The President may call a special meeting of the Board at any time, and
shall call such a special meeting whenever requested to do so by a majority of
the directors. He shall, with the Treasurer or Secretary, sign all certificates
of stock in the corporation, and shall perform all other duties required of him
by law or by the articles of incorporation.
Section 6. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees.
He shall give, or cause to be given, notice of all meetings of the stockholders
and special meetings of the Board of Directors, and shall perform such other
duties as may be prescribed by the Board of Directors or President, under whose
supervision he shall be. He shall keep in safe custody the seal of the
corporation, and, when authorized by the Board of Directors, affix the same to
any instrument requiring it and, when so affixed, it shall be attested by his
signature or by the signature of the Treasurer.
Section 7. The Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the corporation, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors when
requested an account of all his transactions as Treasurer and of the financial
condition of the corporation. If required by the Board of Directors, he shall
give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of his office and for the restoration to the corporation, in case of
his death, resignation, retirement or removal from office of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
ARTICLE V
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<PAGE> 5
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of, the corporation, by the
President and Treasurer or Secretary, certifying the number of shares owned by
him in the corporation.
Section 2. Where a certificate is signed (1) by a transfer agent or an
assistant transfer agent or (2) by a transfer clerk acting on behalf of the
corporation and a registrar, the signature of any such President, Secretary or
Treasurer may be facsimile. In case any officer or officers who have signed, or
whose facsimile signature or signatures have been used on, any such certificate
or certificates shall cease to be such officer or officers of the corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates have been delivered by the corporation, such certificate or
certificates may nevertheless be adopted by the corporation and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature has been used thereon, had not ceased
to be such officer or officers of the corporation.
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost or destroyed.
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 5. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
ARTICLE VI
GENERAL PROVISIONS
Section 1. The President shall present at each annual meeting a statement
of the business and condition of the corporation.
-27-
<PAGE> 6
Section 2. All checks or demand for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
Section 3. The fiscal year of the corporation shall commence the first day
of January in each year.
Section 4. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal, Rhode
Island". The seal may be used by causing it or a facsimile thereof to be
impressed, affixed or reproduced or otherwise.
ARTICLE VII
REPEAL AND AMENDMENT OF BY-LAWS
These By-laws may be altered, amended or repealed, or new By-laws may be
adopted at any annual or special meeting of the shareholders by an affirmative
vote of a majority of the shares issued and outstanding and entitled to vote;
provided, however, that notice of such alteration, amendment, repeal or adoption
of new By-laws shall be contained in the notice of such meeting. The Board of
Directors shall have like authority to alter, amend, repeal or adopt new By-laws
by an affirmative vote of majority of the number of Directors fixed as provided
in these By-laws; provided, however, that any action in that respect by the
Board of Directors may be changed thereafter by the shareholders.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS
The corporation shall indemnify, to the full extent permitted by law from
time to time, any person who is or was a director of the corporation and any
person who, while a director of the corporation, is or was serving at the
request of the corporation as a director, officer, partner, trustee, employee or
agent of another foreign or domestic corporation, partnership, joint venture,
trust, other enterprise or employee benefit plan, against all judgments,
penalties, fines, settlements and reasonable expenses actually incurred by such
person in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, in which
such person was, is or is threatened to be made a named defendant or respondent
by reason of the fact that such person is serving or at any time was serving in
one or more of the capacities set forth above.
-28-
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