SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-8016
OLD STONE CORPORATION
(Exact name of registrant as specified in its charter)
Rhode Island 05-0341273
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Four Davol Square, Suite 320
Providence, Rhode Island 02903
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 521-0065
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($1.00 par value)
Cumulative Voting Convertible Preferred Stock, Series B
($20.00 Stated Value, $1.00 Par Value)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Rule
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]
On January 29, 1993, the Registrant's Common Stock and Preferred Stock were
delisted from listing on NASDAQ; accordingly, since that date there has been
no established trading market, and no ascertainable market value, for such
stock. See "Business--Background".
As of the close of business on March 17, 1995, 8,246,175 shares of the
Registrant's Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit 21
<PAGE>
PART I
ITEM 1. BUSINESS
Background
Old Stone Corporation (the "Corporation") is a general business corporation
incorporated in 1969 under the laws of the State of Rhode Island. The
principal offices of the Corporation are located at Four Davol Square, Suite
320, Providence, Rhode Island 02903.
On January 29, 1993, the Office of Thrift Supervision ("OTS") declared Old
Stone Bank, a Federal Savings Bank, a federally chartered stock savings bank
organized under the laws of the United States (the "Bank"), insolvent, and
appointed the Resolution Trust Company ("RTC") as receiver (the "Bank
Closing"). The RTC formed a bridge bank, Old Stone Federal Savings Bank (the
"Bridge Bank") which assumed all of the deposit liabilities and substantially
all of the other liabilities of the Bank and acquired substantially all of the
assets of the Bank (including the stock of all of its subsidiaries).
Immediately prior to the Bank Closing, the Bank constituted substantially all
of the assets of the Corporation. Immediately following the Bank Closing, all
of the officers of the Corporation resigned and were hired by the Bridge Bank.
A limited slate of new officers was elected on March 8, 1993. See Item 10
below.
The Corporation continues to hold its equity interest in Old Stone
Securities Company ("Old Stone Securities"). See "Significant Subsidiary"
below. The Corporation has no equity interest in any other significant entity.
Significant Subsidiary
The Corporation's only surviving active subsidiary after the Bank Closing is
Old Stone Securities, a registered securities broker-dealer which provides
brokerage services to retail and institutional clients. In addition, Old
Stone Securities participates in Rhode Island underwritings of tax-exempt
securities, maintains an inventory of tax-exempt securities for resale, and
also trades government securities both at auction and in the secondary market.
See "Regulation" below.
Regulation
Old Stone Securities is subject to regulation by the Securities and Exchange
Commission, the State of Rhode Island, and the National Association of
Securities Dealers, Inc.
Employees
As of December 31, 1994, the Corporation had no employees. As of such date,
Old Stone Securities employed 3 persons, all of whom were full-time.
<PAGE>
ITEM 2. PROPERTIES
The administrative offices of the Corporation and Old Stone Securities are
located at Four Davol Square, Suite 320, in Providence, Rhode Island. Such
offices are leased on a month-to-month basis at a per month rental of $2,600,
which amount is paid by Old Stone Securities.
ITEM 3. LEGAL PROCEEDINGS
The Corporation is not aware of any pending or threatened legal proceedings
against the Corporation or Old Stone Securities, except as noted in the
counterclaim discussed below.
On January 29, 1993, the OTS declared the Bank insolvent, and appointed the
RTC as receiver. See Item 1 above, "Business--Background".
On September 16, 1992, the Corporation and the Bank ("Plaintiffs")
instituted a suit against the United States ("Defendant") in the U.S. Court of
Federal Claims. In connection with certain government-assisted acquisitions
by Plaintiffs in the 1980's, the Defendant (through its agencies the Federal
Home Loan Bank Board ("FHLBB") and the Federal Savings and Loan Insurance
Corporation) agreed to provide Plaintiffs with certain valuable capital
credits and authorized Plaintiffs to treat those credits as regulatory
capital. Following the passage of the Financial Institutions Reform,
Recovery, and Enforcement Act in August, 1989, the OTS (successor in interest
to the FHLBB) required the Bank to discontinue treating these capital credits
as part of regulatory capital and caused the Bank to write off immediately
approximately $75 million of such capital credits. In this suit Plaintiffs
allege breach of contract by the United States, resulting in substantial
injury to Plaintiffs, effecting a taking of Plaintiffs' property without just
compensation, and unjustly enriching the Defendant at the expense of
Plaintiffs. Plaintiffs seek compensation for the damages caused by the
breach, just compensation for the property taken, and disgorgement of the
amounts by which the Defendant has been unjustly enriched. The Defendant has
filed a counterclaim against Plaintiffs for alleged breach of Plaintiffs' net
worth maintenance agreement. The Plaintiffs have filed an answer denying such
counterclaim. The case is one of several similar cases pending before the
U.S. Court of Federal Claims. The case as to the Corporation has been stayed
pending the outcome of such other suits. In addition, the impact of the Bank
Closing on the claims made by the Bank is unclear since the Defendant now acts
as receiver for the Bank. No prediction as to the outcome of this case can be
made at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during 1994.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Until January 29, 1993, the Corporation's Common Stock, $1.00 par value (the
"Common Stock"), was quoted on the NASDAQ National Market and was traded under
the symbol "OSTN". As of the date hereof, there is no established public
trading market for the Common Stock. Book value per share of Common Stock
after treating the Bank as a discontinued operation in light of the Bank
Closing was ($2.37) on December 31, 1994, compared to ($2.30) on December 31,
1993. At March 17, 1995, there were 8,246,175 shares of Common Stock of the
Corporation outstanding held by 40,319 shareholders of record.
The following table shows the Corporation's Common Stock activity.
Indicated are the high and low bid quotations and dividends paid for each of
the four quarters in 1992.
1992
High Low Dividend
First quarter $6 1/4 $2 7/8 $0
Second quarter 4 3/4 3 5/8 0
Third quarter 3 7/8 1 1/4 0
Fourth quarter 4 1 1/8 0
The Corporation discontinued dividends to holders of its Common Stock and
its Cumulative Voting Convertible Preferred Stock, Series B (the "Preferred
Stock"), during 1991 and does not expect to pay any dividends on such stock
for the foreseeable future. As a result of the failure to pay dividends on
the Preferred Stock for more than four quarters, the holders of the Preferred
Stock collectively are entitled to elect a number of directors of the
Corporation constituting twenty percent (20%) of the total number of directors
of the Corporation at the next meeting of stockholders at which directors are
to be elected. Until the aggregate deficiency is declared and fully paid on
the Preferred Stock, the Corporation may not declare any dividends or make any
other distributions on or redeem the Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
On January 29, 1993, the OTS declared the Bank insolvent, and appointed the
RTC as receiver. See Item 1 above, "Business--Background". Operations of the
Bank, which accounted for substantially all of the Corporation's operations,
have been reflected as discontinued operations in 1992. Bank operations are
not included in 1993 or 1994 operations. The Corporation has recognized
losses from discontinued operations of the Bank only to the extent of its
investment in and advances to the former subsidiary savings and loan
(determined on a basis consistent with generally accepted accounting
principles). At December 31, 1993 and 1994 the Corporation's statements of
financial condition do not include any assets or liabilities of the Bank.
The following schedule of selected financial information includes the three
years ending December 31, 1992, 1993 and 1994. Financial information for the
two years ending December 31, 1990 and 1991 are not included as the
Corporation believes that disclosure of this information would no longer be
meaningful in light of the Bank Closing.
Old Stone Corporation three year comparison ($ in thousands, except for share
and per share amounts):
Fiscal Year Ended: December 31, December 31, December 31,
1992 1993 1994
INCOME:
Interest income $ 896 $ 51 $ 47
Other income (loss) 935 357 230
Total income (loss) 1,831 408 277
EXPENSES:
Interest expense 590 6 0
Provision for loan losses 112 0 0
Salaries and benefits 212 216 211
Other operating expenses 512 502 420
Total expense 1,426 724 631
INCOME:
Income (loss) from
continuing operations
before income taxes $ 405 $ (316) $ (354)
Income taxes (credit) (814) (7) 26
Income (loss) from
continuing operations 1,219 (309) (380)
Income (loss) from
discontinued operations (57,211) 0 0
NET LOSS ($55,992) (309) (317)
Net loss available
to common shareholders ($58,700) $ (3,017) $ (3,088)
Loss per share:
From continuing operations ($.18) ($.37) ($.37)
From discontinued operations ($6.93) 0 0
Net loss ($7.11) ($.37) ($.37)
Average shares outstanding 8,261,306 8,246,175 8,246,175
ASSETS:
Cash $ 30 $ 18 $ 32
Short-term investments 1,728 1,150 797
Loans receivable, net 116 122 117
Other assets 674 543 540
TOTAL $2,548 $1,833 $1,486
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES:
Long-term debt 407 5 0
Other liabilities 1,285 1,281 1,319
Total liabilities 1,692 1,286 1,319
Redeemable preferred stock 19,319 19,515 19,711
Stockholders' equity (deficit) (18,463) (18,968) (19,544)
$2,548 $1,833 $1,486
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
On January 29, 1993, the OTS declared the Bank insolvent, and appointed the
RTC as receiver. See Item 1 above, "Business--Background". Operations of the
Bank, which accounted for substantially all of the Corporation's operations,
have been reflected as discontinued operations in 1992. Bank operations are
not included in 1993 or 1994 operations. The Corporation has recognized
losses from discontinued operations of the Bank only to the extent of its
investment in and advances to the former subsidiary savings and loan
(determined on a basis consistent with generally accepted accounting
principles). At December 31, 1993 and 1994 the Corporation's statements of
financial condition do not include any assets or liabilities of the Bank.
Current Operations
As a result of the Bank Closing, the Corporation's present business
activities include its only surviving significant subsidiary, Old Stone
Securities, a registered securities broker-dealer which provides brokerage
services to retail and institutional clients.
Old Stone Securities' loss before income taxes was $150,311 for the year
ended December 31, 1994, compared to $7,104 for the year ended December 31,
1993.
Management has invested, and intends in the future to invest, the
Corporation's assets on a short-term basis. While the Corporation's Board of
Directors has considered selling Old Stone Securities, the Board has
determined not to do so at the present time. Various expense saving measures
were instituted at Old Stone Securities during the fourth quarter of 1994,
which are expected to improve operating results in 1995.
Since the Bank Closing, and except for the operation of Old Stone
Securities, the Corporation's primary expenses have been legal, insurance,
accounting, and shareholder relations expenses.
Liquidity and Capital Resources
At December 31, 1994, the Corporation had $1.5 million in assets, $1.3
million in total liabilities, $19.7 million in redeemable preferred stock, and
a stockholder's deficit of ($19.5) million, compared to $1.8 million in
assets, $1.3 million in total liabilities, $19.5 million in redeemable
preferred stock and stockholders' deficit of ($19.0) million at December 31,
1993.
The Corporation's assets are currently being invested short-term, and
expenses have been reduced to a level that management believes is commensurate
with the Corporation's current activities pending resolution of any potential
claims. See "Current Operations" above.
Results for Year Ended December 31, 1994 Compared to Year Ended December 31,
1993
The Corporation reported a loss of ($380,000) for the year ended December
31, 1994 compared to a total loss of ($309,000) for the year ended December
31, 1993.
Interest income was $47,000 for the year ended December 31, 1994, compared
to $51,000 for the year ended December 31, 1993.
Interest expense was $-0- for the year ended December 31, 1994, compared to
$6,000 for the year ended December 31, 1993. The reduction was primarily due
to paydown of long term debt during 1994.
Other income was $25,000 for the year ended December 31, 1994, compared to
$33,000 for the year ended December 31, 1993.
Since the Bank Closing, the Corporation's primary operating expenses have
been legal, insurance and accounting expenses as well as the operating
expenses of Old Stone Securities. Operating expenses (including salaries and
benefits and excluding interest expense) were $631,000 for the year ended
December 31, 1994, compared to $718,000 for the year ended December 31, 1993.
Salaries and benefits for the year ended 1994 were $211,000 compared to
$216,000 for 1993.
The loss per share from continuing operations was ($.37) for the year ended
December 31, 1994 after the deduction of preferred dividends of $2.7 million.
The loss per share from continuing operations was ($.37) for the year ended
December 31, 1993 after the deduction of preferred dividends of $2.7 million.
No preferred or common dividends have been paid since the second quarter of
1991 and the Corporation does not expect to pay dividends in the foreseeable
future. Further, the Corporation is prohibited from paying dividends on the
common stock until the aggregate deficiency on the preferred stock dividends
is paid in full.
The Corporation had total assets of $1.5 million at December 31, 1994,
compared to $1.8 million at December 31, 1993. The reduction in assets from
1993 was primarily due to the funding of the 1994 operating loss of ($380,000).
Results for Year Ended December 31, 1993 Compared to Year Ended December 31,
1992
<PAGE>
The Corporation reported a loss of ($309,000) for the year ended December
31, 1993 compared to a total loss of ($56) million for the year ended December
31, 1992. Loss from continuing operations was ($309,000) for the year ended
December 31, 1993, compared to income of $1.2 million for the year ended
December 31, 1992. The Corporation lost ($57.2) million from discontinued
operations in 1992.
Interest income was $51,000 for the year ended December 31, 1993, compared
to $896,000 for the year ended December 31, 1992. The reduction was primarily
due to the lower amount of funds available for investment as well as the
recognition of $648,000 of deferred interest income related to loans made on
Old Stone Development projects in 1992.
Interest expense was $6,000 for the year ended December 31, 1993, compared
to $590,000 for the year ended December 31, 1992. The reduction was primarily
due to the paydown of short-term and long-term debt during 1992.
Other income was $33,000 for the year ended December 31, 1993, compared to
$283,000 for the year ended December 31, 1992. The reduction was primarily
due to management fee income earned by the Corporation from Old Stone Credit
Corporation during 1992 in the amount of $156,000.
Since the Bank Closing, the Corporation's primary operating expenses have
been legal, insurance and accounting expenses as well as the operating
expenses of Old Stone Securities. Operating expenses (including salaries and
benefits and excluding interest expense and the provision for Loan losses)
were $718,000 for the year ended December 31, 1993, compared to $724,000 for
the year ended December 31, 1992.
Salaries and benefits remained relatively level for the year ended 1993
compared to 1992 ($216,000 for 1993; $212,000 for 1992).
The loss per share from continuing operations was ($.37) for the year ended
December 31, 1993 after the deduction of preferred dividends of $2.7 million.
The loss per share from continuing operations was ($.18) for the year ended
December 31, 1992 after the deduction of preferred dividends of $2.7 million.
No preferred or common dividends have been paid since the second quarter of
1991 and the Corporation does not expect to pay dividends in the foreseeable
future. Further, the Corporation is prohibited from paying dividends on the
common stock until the aggregate deficiency on the preferred stock dividends
is paid in full. The loss per share from discontinued operations for the year
ended December 31, 1993 and 1992 were $-0- and ($6.93), respectively, bringing
the total loss per share for those years to ($.37) and ($7.11) respectively.
The Corporation had total assets of $1.8 million at December 31, 1993,
compared to $2.5 million at December 31, 1992. The reduction in assets from
1992 was primarily due to the paydown of long-term debt of $402,000 as well as
the funding of the 1993 operating loss of ($309,000).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Corporation's Consolidated Financial Statements for the year ended
December 31, 1994 is filed as Exhibit 99 to this report.
LGC&D has been engaged by the Corporation to audit the Corporation's
financial statements for the year ended December 31, 1994.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In January, 1994 the Corporation engaged Lefkowitz, Garfinkel, Champi and
DeRienzo P.C. ("LGC&D") to audit the Corporation's financial statements for
the year ended December 31, 1993. The engagement of LGC&D was approved by the
Corporation's Board of Directors. As a result of a fee dispute, the
Corporation did not engage Deloitte & Touche, which had audited the
Corporation's financial statement for the years ended December 31, 1991 and
1992. Deloitte & Touche had not expressed an opinion on the Corporation's
financial statements for 1992 due to the uncertainties resulting from the Bank
Closing. However, it should be noted that there had been no disagreements
with Deloitte & Touche on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedures.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the directors
of the Corporation. There are no persons nominated or chosen to become
directors of the Corporation. (See "Market for the Registrant's Common Equity
and Related Stockholder Matters" for a discussion of the right of the holders
of the Corporation's Preferred Stock to elect 20% of the directors of the
Corporation.)
Director Term
Name Age Principal Occupation Since Expires
Howard W. Armbrust 67 Chairman and Chief Executive 1974 1995
Officer, Armbrust Corporation
(chain and jewelry
manufacturer)
Bernard V. Buonanno, Jr. 57 Partner, Edwards & Angell 1979 1994
(law firm)
Director, A.T. Cross Company
Robert E. DeBlois 61 Chairman, President and 1974 1995
Chief Executive Officer
Officer, DeBlois Oil Company
(oil distributor)
Thomas P. Dimeo 64 Chairman, The Dimeo Group of 1974 1995
Companies (construction
industry)
Allen H. Howland 74 Chairman and Chief Executive 1992* 1994
Officer, Original Bradford
Soap Works, Inc. (manufacturer
of private label soaps)
Beverly E. Ledbetter 51 Vice President and General 1981 1995
Counsel, Brown University
Alfred J. Verrecchia 52 Chief Operating Officer and 1987 1993
Director, Hasbro, Inc.
(toy manufacturer)
Richmond Viall, Jr. 75 Private Investor 1992** 1993
* Also served as a Director from 1981 to 1991.
** Also served as a Director from 1974 to 1991.
Immediately following the Bank Closing, all of the executive officers of the
Corporation resigned and were hired by the Bridge Bank. A limited slate of
new officers was elected by the Board of Directors on March 8, 1993, none of
whom would be considered executive officers of the Corporation under the Rules.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
The Act and the Rules require disclosure of certain information on Executive
Compensation with respect to the Corporation and its subsidiaries for the year
ended December 31, 1994. Immediately following the Bank Closing, all of the
executive officers of the Corporation resigned and were hired by the Bridge
Bank and a limited slate of new officers was elected on March 8, 1993. None
of the new slate of officers elected on March 8, 1993 would be considered
executive officers of the Corporation under the Rules.
Meetings and Compensation of Board of Directors
For the fiscal year ended December 31, 1994, Directors received no
compensation for serving on the Board or attending committee meetings.
The Stock Purchase Plan of Old Stone Corporation for Employees and Directors
was originally approved by the shareholders of the Corporation on April 29,
1988, and amended by the Directors of the Corporation on December 28, 1988
("Stock Purchase Plan"). Under the Stock Purchase Plan, Directors and
employees were permitted to purchase Common Stock through payroll deductions.
As of the date of the Bank Closing, all participation in the Stock Purchase
Plan was discontinued.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Stockholders of the Corporation
The following table sets forth information as to the only persons known to
the Corporation to be beneficial owners of more than five percent (5%) of any
class of outstanding voting securities of the Corporation.
Amount and Nature of Beneficial Ownership of Common Stock (1)
Sole Shared Sole Shared Percent
Voting Voting Dispositive Dispositive of
Power Power Power Power Class(2)
Old Stone Employee
Stock Ownership Plan 0 0 0 2,065,175(3) 25.04
150 South Main Street
Providence, RI 02903
(1)This information with respect to beneficial ownership is based upon
information obtained by the Corporation as of December 31, 1994 from the
RTC as Trustee of the ESOP.
(2)This percentage is calculated assuming that no outstanding options are
exercised.
(3)Employees have sole voting power over all shares of Common Stock which have
been allocated to their accounts. Prior to December 31, 1991, shares of
Common Stock purchased by the ESOP with borrowed funds were allocated to
employees' accounts only as and to the extent that the ESOP's debt was
amortized. Unallocated shares were held in a suspense account and, in
accordance with the Ninth Amendment to the ESOP adopted on September 27,
1988, were at all times voted in the same proportion as allocated shares.
The borrowings were paid in full during 1991, and as a result, 465,524.747
unallocated shares were allocated to employees' accounts, 826,000
unallocated shares were returned to the Corporation and 17,596.813 shares
were held in a suspense account until July 6, 1992, at which time such
shares were sold to pay Plan expenses. The Ninth Amendment also provides
pass-through tender offer rights to Plan participants with respect to all
allocated ESOP shares. The Trustee has sole dispositive power with
respect to all ESOP shares in all circumstances other than a tender or
exchange offer.
Security Ownership of Directors
The following table sets forth information furnished to the Corporation by
all present Directors regarding amounts of Common Stock of the Corporation
owned by them on December 31, 1994. No director owns any shares of Preferred
Stock. Except as noted, all such persons possess sole voting and investment
power with respect to the securities listed below. An asterisk in the column
listing the percentage of securities beneficially owned indicates the person
owns less than one percent.
Name of Individual or Identity of
and Number of Persons in Group Number of Shares Percent of Class
Howard W. Armbrust 2,000 *
Bernard V. Buonanno, Jr. 4,613 *
<PAGE>
Robert E. DeBlois 4,742 *
Thomas P. Dimeo 11,000 (1) *
Allen H. Howland 2,557 (2) *
Beverly E. Ledbetter 333 *
Alfred J. Verrecchia 1,526 *
Richmond Viall, Jr. 10,000 (3) *
All current Directors of the Corporation
as a group (8 persons) 36,771 (4) *
(1)Excludes 1,000 shares owned by Mr. Dimeo's spouse, as to which he disclaims
beneficial ownership. Includes 1,000 shares owned indirectly by Mr. Dimeo
in the Dimeo Construction Company Profit Sharing Plan.
(2)Excludes 100 shares owned by Mr. Howland's spouse, as to which he disclaims
beneficial ownership.
(3)Excludes 284 shares held by Mr. Viall's spouse, as to which he disclaims
beneficial ownership.
(4)Includes shares held jointly, or in other capacities, as to which, in some
cases, beneficial ownership is disclaimed.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Interests of Directors, Officers and Others in Certain Transactions
During 1994, directors of the Corporation and their associates were
customers of, and had transactions, including loans, with, the Bank and other
former subsidiaries of the Corporation in the ordinary course of business.
All such loans were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons and did not involve more than normal risk of
collectibility or present other unfavorable features.
Mr. Buonanno is a partner of Edwards & Angell, a law firm retained by the
Corporation on various legal matters. The dollar amount of fees paid to
Edwards & Angell during 1994 did not exceed 5% of Edwards & Angell's gross
revenues for 1994.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. and 2. List of Financial Statements and Financial Statement
Schedules
(1) The following consolidated financial statements and report of
independent accountants of the Corporation and subsidiaries are filed
as Exhibit 99 to this report.
Consolidated Balance Sheets - December 31, 1994 and 1993
Consolidated Statements of Operations - Years ended December 31,
1994, 1993 and 1992
Consolidated Statements of Changes in Stockholders' Equity (Deficit) -
Years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flow - Years ended December 31, 1994,
1993 and 1992
Notes to Consolidated Financial Statements
Independent Auditors' Report
Letter from Management regarding 1992 consolidated financial statements
(2) Schedules to the consolidated financial statements required by Article
9 of Regulation S-X are not required under the related instructions
or are inapplicable and therefore have been omitted.
(3) List of Exhibits -- See Item 14(c) below.
(b) Reports on Form 8-K
None
(c) Exhibit Index.
Exhibit Page
(21) Subsidiaries of the Registrant
(Exhibit 21 to the Corporation's
Annual Report on Form 10-K for the
year ended December 31, 1994 is
hereby incorporated by reference
herein.)
(99) Consolidated Financial Statements
(d) All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
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.
OLD STONE CORPORATION
(Registrant)
March 29, 1995 By:/s/ Geraldine Nelson
Geraldine Nelson
President
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 March 29, 1995.
/s/ Geraldine Nelson President and Treasurer
Geraldine Nelson
/s/ Howard W. Armbrust Director
Howard W. Armbrust
/s/ Bernard V. Buonanno, Jr. Director
Bernard V. Buonanno, Jr.
/s/ Robert E. DeBlois Director
Robert E. DeBlois
/s/ Thomas P. Dimeo Director
Thomas P. Dimeo
/s/ Allen H. Howland Director
Allen H. Howland
Beverly E. Ledbetter Director
<PAGE>
/s/ Alfred J. Verrecchia Director
Alfred J. Verrecchia
/s/ Richmond Viall, Jr. Director
Richmond Viall, Jr.
<PAGE>
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.
OLD STONE CORPORATION
(Registrant)
March , 1995 By:
Geraldine Nelson
President
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 March , 1995.
President and Treasurer
Geraldine Nelson
Director
Howard W. Armbrust
Director
Bernard V. Buonanno, Jr.
Director
Robert E. DeBlois
Director
Thomas P. Dimeo
Director
Allen H. Howland
Director
Beverly E. Ledbetter
Director
Alfred J. Verrecchia
Director
Richmond Viall, Jr.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
1. Com. & Fin. Services Co.
2. Guild Loan & Investment Company
3. Old Stone Consumer Finance Co.
4. Old Stone Real Estate Services, Inc.
5. Old Stone Securities Company
Exhibit 99
OLD STONE CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1994, 1993 AND 1992
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
CONTENTS
Independent Auditors' Report 1
Letter from Management 2
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Changes in Stockholders'
Equity (Deficit) 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-20
<PAGE>
Independent Auditors' Report
Board of Directors
Old Stone Corporation
Providence, Rhode Island
We have audited the consolidated balance sheets of Old Stone Corporation and
Subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of operations, changes in stockholders' equity (deficit) and cash
flows for the years then ended. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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.
As discussed in Notes 1 and 2, substantially all of the operations of the
Corporation have been discontinued and the Corporation is subject to a number
of commitments and contingencies, all of which raise substantial doubt about
its ability to continue as a going concern. The accompanying 1994 and 1993
consolidated financial statements have been prepared by the Corporation
assuming that the Corporation will continue as a going concern and,
accordingly, include no adjustments for the outcome of these uncertainties.
Because of the possible material effects of the uncertainties referred to in
the preceding paragraph, we are unable to express, and we do not express, an
opinion on the 1994 and 1993 consolidated financial statements.
s/s LEFKOWITZ, GARFINKEL, CHAMPI & DeRIENZO P.C.
March 27, 1995
Providence, Rhode Island
<PAGE>
To Our Stockholders:
Our former independent auditors have not reissued their independent auditors'
report on the Corporation's consolidated financial statements of operations,
changes in stockholders' equity (deficit) and cash flows for the year ended
December 31, 1992, which statements are included in the accompanying
consolidated financial statements. This is due principally to a fee dispute
between the Corporation and the former independent auditors, which we hope
will be resolved in the near future.
s/s Geraldine Nelson
Geraldine Nelson
President, Old Stone Corporation
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1994 and 1993
($ in thousands)
ASSETS
1994 1993
Cash (Note 9) $ 32 $ 18
Short-term investments (Note 3) 797 1,150
Loans (net of reserve for loan
losses of $112 in 1994 and 1993) 117 122
Accrued interest receivable 6 3
Other assets (Note 5) 534 540
$ 1,486 $ 1,833
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Long-term debt (Note 3) $ 5
Other liabilities (Notes 5 and 8) $ 1,319 1,281
1,319 1,286
Commitments and contingencies
(Notes 1,6,7,8 and 10)
Redeemable preferred stock
(Note 7):
Preferred stock, series B, $1
par value; 1,046,914 shares
authorized, issued and outstand-
ing (Liquidation value $20,938) 19,711 19,515
Stockholders' equity (deficit)
(Note 10):
Common stock, $1 par value;
25,000,000 shares authorized;
8,300,175 shares issued in 1994
and 1993 8,300 8,300
Additional paid-in capital 92,274 92,470
Surplus 30,000 30,000
Accumulated deficit (148,975) ( 148,595)
Treasury stock, at cost, 54,000
shares in 1994 and 1993 ( 1,143) ( 1,143)
( 19,544) ( 18,968)
$ 1,486 $ 1,833
See notes to consolidated financial statements.
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
($ in thousands except for per share data)
1994 1993 1992
Income:
Interest income $ 47 $ 51 $ 896
Securities gains,
net 47 81 137
Commission income 158 243 515
Other income 25 33 283
277 408 1,831
Expenses:
Interest expense 6 590
Provision for loan
losses (Note 1) 112
Salaries and employee
benefits 211 216 212
Net occupancy expense 28 21 13
Equipment expense,
including depreciation 37 28 12
Other expenses 355 453 487
631 724 1,426
Income (loss) from
continuing operations
before income taxes
(benefit) ( 354) ( 316) 405
Income taxes (benefit)
(Note 6) 26 ( 7) ( 814)
Income (loss) from
continuing operations ( 380) ( 309) 1,219
Loss from discontinued
operations (Note 2) ( 57,211)
Net loss ($ 380) ($ 309) ($55,992)
Net loss available for
common stockholders
(Note 4) ($3,088) ($ 3,017) ($58,700)
Loss per share from (Note 4):
Continuing operations ($ .37) ($ .37) ($ .18)
Discontinued operations ( 6.93)
Total ($ .37) ($ .37) ($ 7.11)
Average common shares
outstanding 8,246,175 8,246,175 8,261,306
See notes to consolidated financial statements.
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
($ in thousands)
1994 1993 1992
Cash flows from operating
activities:
Net loss ($ 380) ($ 309) ($55,992)
Adjustments to reconcile net
loss to net cash provided
by (used in) operating
activities:
Provision for loan losses 112
Depreciation 7 4
Increase in:
Receivable ( 3)
Payable 38
Decrease in:
Receivable 96
Payable ( 2) ( 243)
Investment in discon-
tinued operations 55,677
Other, net 150 2,214
Net cash provided by (used in)
operating activities ( 338) ( 157) 1,864
Cash flows from investing
activities:
Net decrease in investments 353 578 2,011
Net decrease (increase)
in loans 5 ( 6) 71
Acquisition of premises
and equipment ( 1) ( 25)
Net cash provided by
investing activities 357 547 2,082
Cash flows from financing
activities:
Net decrease in
short-term borrowings (1,417)
Repayment of long-term debt ( 5) ( 402) (3,899)
Other, net ( 464)
Net cash used by financing
activities ( 5) ( 402) (5,780)
Increase (decrease) in cash 14 ( 12) (1,834)
Cash, beginning of period 18 30 1,864
Cash, end of period $ 32 $ 18 $ 30
See notes to consolidated financial statements.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
1. Description of business, basis of presentation and summary of
significant accounting policies:
Description of business and basis of presentation:
Old Stone Corporation (the "Company") was originally formed as a
unitary savings and loan holding company which conducted
substantially all of its business through its ownership of Old
Stone Bank (a federal savings bank) and subsidiaries (together,
the "Bank"). On January 29, 1993, the Office of Thrift
Supervision of the United States Department of the Treasury
("OTS") placed the Bank into receivership due to the Bank's
undercapitalization. The OTS created a new institution, Old
Stone Federal Savings Bank ("Old Stone Federal") to assume all
deposits and certain assets and liabilities of the Bank. The
Resolution Trust Corporation ("RTC") was appointed receiver to
handle all matters related to the Bank and as conservator of Old
Stone Federal. A substantial portion of the assets and
liabilities of Old Stone Federal was sold by the RTC to another
Rhode Island financial institution in 1994. The RTC continues
to act as conservator of the remaining assets and liabilities of
Old Stone Federal.
The operations of the Bank accounted for substantially all of the
Company's operations in 1992. As a result of the receivership
of the Bank, the Company has undergone material changes in the
nature of its business and is no longer operating as a savings
and loan holding company. Accordingly, the operations of the
Bank subsequent to receivership have not been included in the
accompanying consolidated financial statements, and the
operations of the Bank prior to receivership have been reported
as discontinued operations in the accompanying consolidated
financial statements. For financial reporting purposes, the
effective date of the receivership of the Bank is considered to
be December 31, 1992.
The Company's continuing business activities include its sole
active surviving subsidiary, Old Stone Securities Company, a
registered securities broker-dealer which provides brokerage
services to retail and institutional clients. All material
intercompany transactions and balances have been eliminated.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
1. Description of business, basis of presentation and summary of
significant accounting policies (continued):
Description of business and basis of presentation (continued):
The accompanying 1994 and 1993 consolidated financial statements
have been prepared assuming the Company will continue as a going
concern. As discussed previously and in Note 2, substantially
all of the operations of the Company have been discontinued.
The Company has a net equity deficiency of approximately
$19,500,000 at December 31, 1994 and is subject to a number of
commitments and contingencies, as follows:
. The Company's sole remaining active subsidiary incurred a
loss of approximately $151,000 in 1994. Management does
not expect these operating results to improve in the near
future. Therefore, no significant capital or cash flow is
expected to be derived by the Company from this subsidiary.
. The Company may be subject to regulatory or legal proceedings
related to its management of the Bank prior to receivership
(see also Notes 2 and 10).
. The Company has been unable to pay cumulative dividends on
the Series B preferred stock outstanding. Also, management
does not expect the Company to be able to meet its
redemption obligations (see also Note 7).
. The Company has been unable to pay its obligations to Old
Stone Federal, substantially all of which arose prior to
the Bank's receivership. Also, the effects of the transfer
or termination of certain employee benefit plans on the
Company, if any, are not presently known (see also Note 8).
All of the above raise substantial doubt about the Company's ability
to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the
outcome of these uncertainties.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
1. Description of business, basis of presentation and summary of
significant accounting policies (continued):
Description of business and basis of presentation (continued):
Until the outstanding uncertainties discussed above are resolved,
management has invested, and intends to invest, the Company's
assets on a short-term basis. While the Company's Board of
Directors has considered from time to time whether or not it
would be appropriate for the Company to liquidate its assets, no
decision has been made at the present time.
Cash and cash equivalents:
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents. There were no cash equivalents at December 31,
1994, 1993 or 1992.
Short-term investments:
Effective January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities," which is applicable to its short-term investments.
Management has classified all such investments as available for
sale; accordingly, short-term investments are carried at market.
Such investments principally consist of investments in money
market funds; accordingly, market value equals cost. These
money market funds hold primarily investments in U.S. government
securities in the name of the fund. There was no effect of the
adoption of SFAS No. 115 on the accompanying consolidated
financial statements.
Loans and reserve for loan losses:
Investments in loans are stated at amortized cost, less an
allowance for amounts deemed uncollectible by management.
Substantially all such investments in loans are being serviced
by Old Stone Federal or its successor-in-interest and were
purchases of participating interests in loans or groups thereof
in prior years. The loans bear interest ranging from 8% to 13%
and are collateralized by real estate or tangible property.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
1. Description of business, basis of presentation and summary of
significant accounting policies (continued):
Loans and reserve for loan losses (continued):
Loans amounting to approximately $112,000 were made in prior
years to former officers of the Company or its subsidiaries.
Such loans were fully reserved in 1992.
Premises and equipment and depreciation:
Premises and equipment, included in other assets, are stated at
cost. Depreciation is provided using straight-line and
accelerated methods over the estimated useful lives of the
assets.
Income taxes:
The Company has filed consolidated federal income tax returns,
including all of its subsidiaries (even those in receivership),
in 1993 and prior years and is expected to continue to do so in
1994.
The Company accounts for certain income and expenses for financial
reporting purposes in different periods than for income tax
reporting purposes, principally with respect to the losses on
discontinued operations and the continuing losses incurred by
its subsidiaries in receivership.
The change in the deferred tax assets and liabilities resulting
from these and other temporary differences are recognized
currently in the provision for income taxes.
Loss per common share:
Loss per common share is computed by dividing net loss, increased
by required dividends on preferred stock and the accretion of
the discount on the preferred stock, by the weighted average
number of shares of common stock and common stock equivalents
outstanding during each period presented. Fully diluted loss
per share amounts are no longer presented, as the conversion
price of the redeemable convertible preferred stock and the
exercise price of the warrants outstanding are greater than the
current market value of the Company's common stock.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
2. Discontinued operations:
As a result of the OTS intervention discussed in Note 1, Bank
operations have been reported as discontinued operations in
1992. The Company has recognized losses from discontinued
operations of the Bank only to the extent of its investment in
the Bank (determined on a basis consistent with generally
accepted accounting principles, as the Company is not obligated
to fund the Bank's losses). At December 31, 1994 and 1993, the
Company's balance sheet does not include any assets or
liabilities of the Bank.
The loss from the discontinued operations of Old Stone Bank in
1992 consists of the following (dollars in thousands):
Loss from operations ($ 89,335)
Write-off of negative
investment 32,124
Total loss from discontinued
operations ($ 57,211)
The following reconciliation summarizes the Company's investment
in the Bank and the resulting write-off of its negative
investment at December 31, 1992 (dollars in thousands):
Beginning balance $ 55,677
Capital contribution 1,534
57,211
Loss from operations ( 89,335)
Balance before write-off
of negative investment ( 32,124)
Write-off of negative
investment at
December 31, 1992 32,124
$ -0-
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
3. Long-term debt and interest:
Long-term debt consisted of the Company's corporate notes, bearing
fixed rates of interest ranging from 12 to 13 percent, all of
which matured in 1993. At December 31, 1993, one individual
note holder had not presented corporate notes totalling $5,000
for payment. Interest did not accrue beyond the maturity date.
These notes were presented and fully paid in 1994.
Interest paid on short-term and long-term borrowings amounted to
approximately $6,000 and $600,000 in 1993 and 1992, respectively.
Short-term investments included amounts restricted for the payment
of corporate notes totalling approximately $132,000 at December
31, 1993. After payment of the last outstanding corporate notes
in 1994, the remaining funds were released from restrictions and
used to fund the 1994 operating deficit.
4. Loss per share:
The calculation of loss per share is as follows (dollars in
thousands, except for per share amounts):
1994 1993 1992
Net loss ($ 380) ($ 309) ($55,992)
Required dividends
and accretion of
discount on
Series B
preferred stock 2,708 2,708 2,708
Net loss
applicable to
common stock ($3,088) ($3,017) ($58,700)
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
4. Loss per share (continued):
1994 1993 1992
Allocation of loss:
Applicable to
continuing
operations ($ 3,088) ($ 3,017) ($ 1,489)
Applicable to
discontinued
operations -0- -0- ( 57,211)
Loss applicable
to common stock ($ 3,088) ($ 3,017) ($ 58,700)
Average shares
outstanding 8,246,175 8,246,175 8,245,358
Net effect of
the assumed
exercise of
options and
warrants -
based on stock
method using
average market
price 15,948
8,246,175 8,246,175 8,261,306
Loss per share:
Continuing operations ($ .37) ($ .37) ($ .18)
Discontinued operations ( 6.93)
Total ( $ .37) ($ .37) ($7.11)
The Company's common stock ceased trading on national exchanges
shortly after the Bank was placed in receivership by the OTS. Since
there is no market for the Company's common stock, the conversion
price of the redeemable preferred stock and the exercise price of
the warrants outstanding are greater than the current value of the
Company's stock. Accordingly, fully diluted earnings per share
amounts are not considered to be relevant and are no longer
presented.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
5. Other assets and liabilities:
The following comprise other assets (dollars in thousands):
December 31,
1994 1993
Cash deposits held by escrow
agents on behalf of the
Company $ 509 $ 500
Premises and equipment,
less accumulated
depreciation of $11 and $4
in 1994 and 1993, respectively 15 21
Customer and other
receivables and prepaids 10 19
Total $ 534 $ 540
The following comprise other liabilities (dollars in thousands):
December 31,
1994 1993
Due Old Stone Federal
(Note 8) $ 593 $ 593
Accrued state income taxes 600 600
Accounts payable and
accrued expenses 126 88
Total $1,319 $1,281
6. Income taxes:
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." The standard requires, among other
provisions, that existing deferred tax assets and liabilities be
adjusted to reflect the effect of changes in tax laws and/or
rates, and that deferred tax assets be reduced by those benefits
that, based on available evidence, are not expected to be
realized.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
6. Income taxes (continued):
The Company adopted this standard in 1993. This adoption had no
material effect on the Company's consolidated financial
statements or previously reported amounts.
The Company is the parent company of an affiliated group of
corporations that file consolidated income tax returns. For the
year ended December 31, 1992, the tax expense calculations
include the operations of the Bank as discontinued operations.
For the years ended December 31, 1994 and 1993, the tax
calculations do not include the operations of the Bank, as they
relate to discontinued operations that are not presented in 1994
and 1993. The Company did file consolidated income tax returns
with the Bank for the years ended December 31, 1993 and 1992 and
expects to do so for the year ended December 31, 1994.
The components of income tax expense (benefit) for each of the
years ended December 31 were as follows (dollars in thousands):
1994 1993 1992
Current tax expense
(benefit):
Federal ($ 4,938)
State $ 26 ($ 7) 175
Foreign 12
26 ( 7) ( 4,751)
Deferred tax benefit:
Federal ( 129) ( 105) ( 14,241)
State ( 237)
( 129) ( 105) ( 14,478)
Benefit of net
operating loss
not recognized:
Current 4,938
Deferred 129 105 13,249
129 105 18,187
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
6. Income taxes (continued):
1994 1993 1992
Goodwill charge
equivalent $ 19
Income tax benefit
included in
discontinued
operations 209
Total $ 26 ($ 7) ($ 814)
The reasons for the difference between income tax expense
(benefit) and the amount computed by applying the statutory
federal income tax rate to operating earnings are as follows
(dollars in thousands):
1994 1993 1992
Loss before
income tax ($ 354) ($ 316) ($56,597)
Tax benefit at
statutory rate ($ 120) ($ 107) ($19,243)
Increase (decrease)
in taxes resulting
from:
Tax-exempt income ( 128)
State tax, net of
federal benefit 17 ( 5) ( 41)
Differences resulting
from acquisitions 802
Benefit of net operat-
ing loss not recog-
nized 129 105 18,187
Goodwill charge
equivalent 19
Alternative minimum
tax 185
Other ( 804)
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
6. Income taxes (continued):
1994 1993 1992
Included in discon-
tinued operations $ 209
Total $ 26 ($ 7) ($ 814)
Deferred income taxes were provided for the temporary differences
between the financial reporting basis and the tax basis of the
Company's assets and liabilities. There were no material
temporary differences that resulted in deferred tax assets or
liabilities being recognized in the consolidated balance sheets
as of December 31, 1994 and 1993, due principally to the
recording of a valuation allowance (see below).
At December 31, 1994, the Company has net operating loss
carryforwards available for federal and state tax reporting
purposes amounting to approximately $92,300,000 and $3,700,000,
respectively. Such amounts include the net operating losses
applicable to the Bank and other previously discontinued
operations through 1993; however, additional net operating loss
carryforwards arising from the 1994 operations of the Bank are
not presently known. These net operating loss carryforwards
expire in various years through 2009.
Since the future use of these net operating loss carryforwards for
tax reporting purposes is uncertain, a valuation allowance for
the entire amount of deferred tax assets resulting from same has
been provided as of December 31, 1994 and 1993.
Income taxes paid in 1994 and 1993 totalled approximately $10,000
and $7,000, respectively. Income taxes refunded, net, during
1992 totalled approximately $1,200,000.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
7. Redeemable preferred stock:
The Cumulative Voting Convertible Series B stock ($20.00 stated
value) is convertible into common stock, at the option of the
holder, until February 20, 2001. Thereafter, the holders of the
Series B stock will have no further conversion rights. The
basis of exchange is determined by dividing the per share book
value of the common stock, as defined in the authorizing stock
resolution, by the $20.00 per share stated value of the Series B
stock, with a minimum exchange rate of one share of Series B
stock for two-thirds share of common stock. Each share is
entitled to one-half vote on all matters upon which common
shares are voted.
The Company may redeem the Series B stock on any dividend date
after February 20, 1991, beginning with the dividend payable on
March 15, 1991, for redemption prices which decline from $21.60
in the first year of the redemption period until February 20,
2001, when the redemption price becomes $20.00 per share for all
ensuing years.
Additionally, beginning on February 20, 2002 and on each
succeeding February 20 thereafter, the Company is required to
redeem 10 percent of the Series B stock at $20.00 per share.
On October 6, 1991 the annual dividend of $2.40 per share was
suspended. As of December 31, 1994 cumulative preferred
dividends of $8,165,929 ($7.80 per share) have not been declared
or paid.
8. Employee benefits:
Prior to the action by the OTS as discussed in Note 1, the Company
and its subsidiaries, along with other subsidiaries of the Bank,
participated in a non-contributory defined benefit pension plan
and an employee stock ownership plan ("ESOP") sponsored by the
Company which covered substantially all full-time employees.
The benefits under the pension plan were based primarily on
years of service and employee compensation. The ESOP, which was
a defined contribution plan, was established as an offset to the
pension plan to provide possible additional future retirement
benefits for the participants in conjunction with the defined
benefit pension plan.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
8. Employee benefits (continued):
Credit for service subsequent to January 29, 1993 is no longer
awarded under either of the plans. Under the terms of the sale
of certain assets and liabilities of Old Stone Federal by the
RTC in 1994, the purchaser has accepted responsibility for the
defined benefit pension plan. The RTC is currently in the
process of planning the termination of the ESOP. The effects of
the transfer of responsibility for the defined benefit pension
plan and the termination of the ESOP on the Company, if any, are
not presently known.
Amounts due Old Stone Federal (see Note 5) include pension
contribution allocations of approximately $478,000 at December
31, 1994 and 1993.
9. Other related party transactions:
The Company had cash on hand with Old Stone Federal of $17,000 as
of December 31, 1993.
10.Other commitments and contingencies:
In connection with a credit facility available in prior years, the
Company issued to a lender a warrant to purchase 200,000 shares
of the Company's common stock at an exercise price of $8.125 per
share, which expired January 17, 1995.
There are certain legal proceedings pending against the Company
and its sole remaining active subsidiary which have arisen in
the normal course of business. Management believes, based upon
the advice of counsel, that liabilities, if any, arising from
these proceedings would not have a materially adverse effect on
the consolidated financial position of the Company and its
subsidiary.
On September 16, 1992, the Company and the Bank ("Plaintiffs")
instituted a suit against the United States ("Defendant") in the
U.S. Court of Federal Claims. In connection with certain
government-assisted acquisitions by Plaintiffs in the 1980's,
the Defendant (through its various agencies) agreed to provide
Plaintiffs with certain valuable capital credits and authorized
Plaintiffs to treat those credits as regulatory capital.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
10.Commitments and contingencies (continued):
Following the passage of the Financial Institutions Reform,
Recovery, and Enforcement Act in August, 1989, the OTS required
the Bank to discontinue treating these capital credits as part
of regulatory capital and caused the Bank to write off
immediately approximately $75,000,000 of such capital credits.
In this suit Plaintiffs allege breach of contract by the United
States, resulting in substantial injury to Plaintiffs, effecting
a taking of Plaintiffs' property without just compensation, and
unjustly enriching the Defendant at the expense of Plaintiffs.
Plaintiffs seek compensation for the damages caused by the
breach, just compensation for the property taken, and
disgorgement of the amounts by which the Defendant has been
unjustly enriched.
The Defendant has filed a counterclaim against Plaintiffs for
alleged breach of Plaintiffs' net worth maintenance agreement.
The Plaintiffs have filed an answer denying such counterclaim.
The case is one of several such cases pending before the U.S.
Court of Federal Claims, and action has been stayed pending
outcome of such other suits. No prediction as to the outcome of
this case can be made at this time.
<PAGE>
[CAPTION]
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
($ in thousands)
<TABLE>
Unearned
Additional portion of Guarantee
Common paid-in Accumulated Treasury restricted of loans
stock capital Surplus deficit stock stock to ESOP Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 $8,303 $92,949 $30,000 ($ 92,294) ($1,143) $ - 0 - $ - 0 - $ 37,815
Net loss ( 55,992) ( 55,992)
Accretion of discount on
preferred stock, Series B ( 196) ( 196)
Restricted stock granted, net ( 3) ( 87) ( 90)
Balance, December 31, 1992 8,300 92,666 30,000 ( 148,286) ( 1,143) ( 18,463)
Net loss ( 309) ( 309)
Accretion of discount on
preferred stock, Series B ( 196) ( 196)
Balance, December 31, 1993 8,300 92,470 30,000 ( 148,595) ( 1,143) ( 18,968)
Net loss ( 380) ( 317)
Accretion of discount on
preferred stock, Series B ( 196) ( 196)
Balance, December 31, 1994 $8,300 $92,274 $30,000 ($148,975) ($1,143) $- 0 - $ - 0 - ( $19,481)
</TABLE>
See notes to consolidated financial statements.
