FORM 10-K
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, 1997
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 Identification No.)
incorporation or organization)
957 Warren Avenue
East Providence, Rhode Island 02914
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 434-4632
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 $1.00 par value (the
"Common Stock") and its Cumulative Voting Convertible Preferred Stock, Series B
$1.00 par value ("Preferred Stock") were delisted from listing on NASDAQ;
accordingly, from that date through approximately mid-November, 1997, there was
no established trading market, and no ascertainable market value, for such
stock. See "Business--Background". Beginning in the fourth quarter of 1997, a
limited trading market developed for the Common Stock and the Preferred Stock,
although the stock is not listed on any exchange or on NASDAQ. On November 14,
1997, Manticore Properties, LLC, a Delaware limited liability company, commenced
a tender offer for any and all shares of such stock, which tender offer was
terminated on December 17, 1997. See Item 1, "Business" -- "Recent Developments"
and Item 12, "Security Ownership of Certain Beneficial Owners and Management".
As of the close of business on March 25, 1998, 8,297,046 shares of the
Registrant's Common Stock were outstanding. See Item 7. "Management's Discussion
and Analysis -- Liquidity and Capital Resources".
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
PART I
ITEM 1. BUSINESS
Background
Old Stone Corporation (the "Registrant") is a general business corporation
incorporated in 1969 under the laws of the State of Rhode Island. The principal
offices of the Registrant are located at 957 Warren Avenue, East Providence,
Rhode Island 02914.
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 Registrant.
Immediately following the Bank Closing, all of the officers of the Registrant
resigned and were hired by the Bridge Bank. A limited slate of new officers was
elected on March 8, 1993. See Item 10 below, "Directors and Executive Officers
of the Registrant".
The Registrant continues to hold its equity interest in Old Stone
Securities Company ("Old Stone Securities"). See "Significant Subsidiary" below.
The Registrant has no equity interest in any other significant entity.
Significant Subsidiary
The Registrant'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
In its capacity as registered transfer agent for the shares of the
Registrant's Common Stock and Preferred Stock, the Registrant is subject to
regulation by the U.S. Securities and Exchange Commission (the "SEC").
Old Stone Securities is subject to regulation by the, SEC, the State of
Rhode Island Department of Business Regulation and the National Association of
Securities Dealers, Inc.
Employees
As of December 31, 1997, the Registrant had one part-time employee. As of
such date, Old Stone Securities employed 3 persons, all of whom were full-time,
two of whom also serve as officers of the Registrant, and who handle certain
administrative functions on behalf of the Registrant.
Recent Developments
On November 14, 1997, a statement was filed with the SEC on Schedule 14D-1
relating to a tender offer by Manticore Properties, LLC, a Delaware limited
liability company ("Manticore"), which is wholly-owned by Gotham Partners, L.P.,
a New York limited partnership ("Gotham I") and Gotham Partners, II, L.P., a New
York limited partnership ("Gotham II"), to purchase any and all shares of the
Registrant's Common Stock for $1.00 per share and the Registrant's Preferred
Stock for $4.00 per share. Based upon subsequent filings with the SEC by
Manticore (see Amendments No. 1, 2 and 3 thereto; Form 3 and Schedule 13D filed
on December 23, 1997; and Amendment No. 1 to Schedule 13D filed on December 30
1997), the tender offer closed on December 17, 1997 during which period
Manticore purchased approximately 1,405,955.529 shares of Common Stock and
297,018 shares of Preferred Stock that were tendered by the Registrant's
shareholders.
Based on the convertibility of the Preferred Stock, Manticore reported
that, as of December 17, 1997, it had shared voting power with respect to
1,603,968 shares of Common Stock.
The Registrant filed a Schedule 14D-9 with the SEC on November 26, 1997 in
which it took no position with respect to the tender offer. The Registrant also
filed a report on Form 8-K with the Commission on December 30, 1997 and a report
on Form 8-K/A on January 6, 1998 amending its earlier Form 8-K.
Subsequent to that time, according to filings by Manticore and its
affiliated companies (Gotham I, Gotham II and Gotham International Advisors,
LLC, a Delaware limited liability company ("Advisors"))(collectively, the
"Funds"), the Funds have continued to purchase shares of the Common Stock and
the Preferred Stock in the open market.
On February 25, 1998, the Funds filed with the SEC Amendment No. 2 to
Schedule 13D relating to the Registrant. According to this filing, as of that
time, Manticore had sole voting and dispositive power with respect to 1,603,968
shares of the Common Stock and 297,018 shares of the Preferred Stock; Gotham I
had sole voting and dispositive power with respect to 2,974 shares of the Common
Stock, shared voting and dispositive power with respect to 1,603,968 shares of
the Common Stock and shared voting and dispositive power with respect to 297,018
shares of the Preferred Stock; Gotham II had sole voting and dispositive power
with respect to 26 shares of the Common Stock, shared voting and dispositive
power with respect to 1,603,968 shares of the Common Stock and 297,018 shares of
the Preferred Stock; and Advisors had sole voting and dispositive power with
respect to 51,067 shares of the Common Stock and 11,800 shares of the Preferred
Stock.
On March 9, 1998, Manticore filed with the SEC a Statement of Changes in
Beneficial Ownership on Form 4 setting forth additional purchases of the
Registrant's Common Stock during the month of February by certain affiliates of
Manticore. Purchases of 78,200 shares of Common Stock were made by Gotham
Partners International Ltd., a Cayman exempted company ("Gotham International"),
which may be deemed to be indirectly beneficially owned by Advisors. Said Form 4
also reports that, because of the convertibility feature of the Preferred Stock,
the 11,800 shares of Preferred Stock owned directly by Gotham International are
convertible into 7,867 shares of Common Stock through February 20, 2001.
Advisors may be deemed to indirectly beneficially own, through Gotham
International, the 11,800 shares of Preferred Stock held by Gotham International
and the 7,867 shares of Common Stock into which they are convertible.
On March 21, 1998, the Funds filed with the SEC Amendment Number 3 to
Schedule 13D relating to the Registrant. According to this filing, as of March
19, 1998, Manticore had sole voting and dispositive power with respect to
1,603,968 shares of the Common Stock and 297,018 shares of the Preferred Stock;
Gotham I had sole voting and dispositive power with respect to 2,974 shares and
shared voting and dispositive power with respect to 1,603,968 shares, of the
Common Stock and shared voting and dispositive power with respect to 297,018
shares of the Preferred Stock; Gotham II had sole voting and dispositive power
with respect to 26 shares, and shared voting and dispositive power with respect
to 1,603,968 shares, of the Common Stock and shared voting and dispositive power
with respect to 297,018 shares of the Preferred Stock; and Advisors had sole
voting and dispositive power with respect to 152,200 shares of the Common Stock
and 19,800 shares of the Preferred Stock.
ITEM 2. PROPERTIES
The administrative offices of the Registrant and Old Stone Securities are
located at 957 Warren Avenue, East Providence, Rhode Island. Such offices are
leased on a month-to-month basis at a per month rental of $800.00, the cost of
which is shared by Old Stone Securities and the Registrant.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not aware of any pending or threatened legal proceedings
against it 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 Registrant 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
("FSLIC")), in exchange for the Bank's purchasing certain assets and assuming
certain liabilities of two FSLIC-insured thrift institutions supervised by
FHLBB, agreed among other things to provide Plaintiffs with certain valuable
capital credits and authorized Plaintiffs to treat those credits and supervisory
goodwill as regulatory capital to be amortized over a period of 25 to 30 years
on the Bank's financial statements. Furthermore, the Registrant entered into a
Net Worth Maintenance Stipulation in which it agreed to maintain the net worth
of the Bank at agreed upon regulatory levels, which included the capital credits
and supervisory goodwill in the calculation thereof.
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 and supervisory
goodwill as part of regulatory capital and caused the Bank to write off
immediately approximately $80 million of such capital credits and supervisory
goodwill. Based upon this breach, 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 the Registrant for alleged breach
of its net worth maintenance agreement. The Registrant has filed an answer
denying such counterclaim.
Following the Bank Closing, the Bank's claims and the claims of the
Registrant were split into two separate actions. The Registrant's claims are
separate and distinct from the claims of the Bank. An agency of the Defendant
serves as receiver for the Bank and is maintaining the Bank's claims against the
Defendant. Subsequent to the year ended December 31, 1997, the Registrant filed
a motion for summary judgment, to which the government has not as yet responded.
There are several similar cases pending before the U.S. Court of Federal Claims.
The Registrant's case is dependent upon the outcome of other cases which are
currently being, or will soon be, litigated on damages. No prediction as to the
timing or the outcome of the Registrant's 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 1997.
However, during the fourth quarter of 1997, Manticore and its affiliates
initiated a tender offer that was submitted to all holders of the Registrant's
Common Stock and Preferred Stock to purchase any and all shares of such stock.
See Item 1, "Business" -- "Recent Developments" and Item 12, "Security Ownership
of Certain Beneficial Owners and Management".
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Until January 29, 1993, the Registrant's 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. At
March 20, 1998, there were approximately 8,297,046 shares of Common Stock of the
Registrant outstanding held by approximately 40,739 shareholders of record.
The Registrant discontinued dividends to holders of its Common Stock and
its Preferred Stock during the third quarter of 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 Registrant constituting twenty percent (20%) of the total
number of directors of the Registrant at the next meeting of stockholders at
which directors are to be elected. Until the aggregate deficiency of $15,703,710
as of December 31, 1997 is declared and fully paid on the Preferred Stock, the
Registrant may not declare any dividends or make any other distributions on or
redeem the Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
On January 29, 1993, the OTS declared the Bank insolvent, and appointed the
RTC as receiver. See Item 1 above, "Business--Background". Operations of the
Bank, which accounted for substantially all of the Registrant's operations, have
been reflected as discontinued operations in 1992. Bank operations are not
included in 1995, 1996 or 1997 operations. The Registrant has recognized losses
from discontinued operations of the Bank only to the extent of its investment in
and advances to the former subsidiary savings and loan (determined on a basis
consistent with generally accepted accounting principles). At December 31, 1996
and 1997 the Registrant's statements of financial condition do not include any
assets or liabilities of the Bank.
The following schedule of selected financial information includes the three
years ending December 31, 1995, 1996 and 1997.
Old Stone Corporation three year comparison ($ in thousands, except for
share and per share amounts):
<TABLE>
<CAPTION>
Fiscal Year Ended: December 31, December 31, December 31,
1995 1996 1997
<S> <C> <C> <C>
INCOME:
Interest income $ 42 $ 20 $ 18
Other income 229 231 179
Total income 271 251 197
EXPENSES:
Interest expense 0 0 0
Salaries and benefits 166 168 155
Other operating expenses 385 376 248
Total expense 551 544 403
INCOME:
(loss) from continuing operations
before income taxes $ (280) $ (293) $ (206)
Income taxes (credit) 9 6 7
(loss) from continuing operations (289) (299) (213)
(loss) from discontinued operations
(182) 0 0
----------- ----------- -----------
NET (LOSS) (471) (299) (213)
Net loss available
to common shareholders $ (3,179) $ (3,007) $ (2,921)
Loss per share:
From continuing operations $ (.36) $ (.36) $ (.35)
From discontinued (.02) 0 0
operations
Net $ (.38) $ (.36) $ (.35)
Average shares outstanding 8,297,046 8,297,046 8,297,046
ASSETS:
Cash $ 272 $ 33 $ 27
Short-term investments 424 401 251
Loans receivable, net 76 56 34
Other assets 293 80 56
----------- ----------- -----------
TOTAL $ 1,065 $ 570 $ 368
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES:
Long-term debt 0 0 0
Other liabilities 1,369 1,173 1,184
Total liabilities 1,369 1,173 1,184
Redeemable preferred stock 19,908 20,104 20,300
Stockholders' equity (deficit) (20,212) (20,707) (21,116)
----------- ----------- -----------
$ 1,065 $ 570 $ 368
</TABLE>
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 Registrant's operations, have
been reflected as discontinued operations since 1992. Bank operations are not
included in 1997 operations. The Registrant 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, 1997
the Registrant'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 Registrant'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 $71,154 for the year
ended December 31, 1997, compared to a loss of $69,064 for the year ended
December 31, 1996.
Management has invested, and intends in the future to invest, the
Registrant's assets on a short-term basis. The Registrant's Board of Directors
has continued to monitor various expense saving and revenue enhancing measures
at Old Stone Securities designed and effectuated during 1997 and to be carried
forward into 1998.
Since the Bank Closing, and except for the operation of Old Stone
Securities, the Registrant's primary expenses have been legal, insurance,
accounting, and transfer agent expenses. At the end of 1996, the Registrant
terminated its transfer agent relationship with American Stock Transfer & Trust
Company and brought this activity in-house pursuant to software license
agreement with TS Partners, Inc.
Liquidity and Capital Resources
At December 31, 1997, the Registrant had $.4 million in assets, $1.2
million in total liabilities, $20.3 million in redeemable preferred stock, and a
stockholder's deficit of $21.1 million, compared to $.6 million in assets, $1.2
million in total liabilities, $20.3 million in redeemable preferred stock and
stockholders' deficit of $20.7 million at December 31, 1996.
The Registrant's assets are currently being invested short-term, and
expenses have been reduced to a level that management believes is commensurate
with the Registrant's current activities pending resolution of any potential
claims. See "Current Operations" above.
Results for Year Ended December 31, 1997 Compared to Year Ended December
31, 1996
The Registrant reported net loss of $213,000 for the year ended December
31, 1997 compared to a loss of $299,000 for the year ended December 31, 1996.
Interest income was $18,000 for the year ended December 31, 1997, compared
to $20,000 for the year ended December 31, 1996.
All other income, including securities gains was $179,000 for the year
ended December 31, 1997, compared to $231,000 for the year ended December 31,
1996.
Since the Bank Closing, the Registrant's primary operating expenses have
been legal, insurance, accounting and transfer agent expenses as well as the
operating expenses of Old Stone Securities. Operating expenses (including
salaries and benefits and excluding interest expense) were $403,000 for the year
ended December 31, 1997, compared to $544,000 for the year ended December 31,
1996.
Salaries and benefits for the year ended 1997 were $155,000 compared to
$168,000 for 1996.
The increase in the number of shares reported for average shares
outstanding from the previous reports for year-end 1995 and 1996 (8,246,175)
compared to this year's report (8,297,046) was not because of additional shares
issued by the Registrant. Rather, the change results from clarification of a
discrepancy with a previous transfer agent. Changes have not been made to the
loss per share calculation in previous year's statements because they are not
material.
The loss per share from continuing operations was $.35 for the year ended
December 31, 1997 after the deduction of preferred dividends and amortization of
original issue discount of $2.7 million. The loss per share from continuing
operations was $.36 for the year ended December 31, 1996 after the deduction of
preferred dividends and amortization of original issue discount of $2.7 million.
The total loss per share was $.36 for the year ended December 31, 1997 compared
to $.36 for the year ended December 31, 1996. No preferred or common dividends
have been paid since the second quarter of 1991 and the Registrant does not
expect to pay dividends in the foreseeable future. Further, the Registrant is
prohibited from paying dividends on the Common Stock until the aggregate
deficiency (totaling $15,703,710 as of December 31, 1997) on the Preferred Stock
dividends is paid in full.
The Registrant has total assets of $.4 million at December 31, 1997,
compared to $.6 million at December 31, 1996. The reduction in assets from 1996
was primarily due to the funding of the 1997 cash operating losses.
Results for Year Ended December 31, 1996 Compared to Year Ended December, 31,
1995
The Corporation reported net loss of $299,000 for the year ended December
31, 1996 compared to a loss of $471,000 for the year ended December 31, 1995.
Interest income was $20,000 for the year ended December 31, 1996, compared
to $42,000 for the year ended December 31, 1995.
All other income, including securities gains was $231,000 for the year
ended December 31, 1996, compared to $229,000 for the year ended December 31,
1995.
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 $544,000 for the year ended December 31, 1996,
compared to $551,000 for the year ended December 31, 1995.
Salaries and benefits for the year ended 1996 were $168,000 compared to
$166,000 for 1995.
The loss from discontinued operations in the amount of $182,000 for the
year ended December 31, 1995 is a direct result of a settlement between the RTC
and the former directors and officers of Old Stone Bank. Under the terms of the
agreement, the Registrant paid $100,000 to the RTC as full settlement and
released the former directors and officers of Old Stone Bank from any and all
obligations owed Old Stone Bank and its successors-in-interest. The loss is
comprised of the payment to the RTC in the amount of $100,000 as well as legal
expenses of $82,492.
The loss per share from continuing operations was $.36 for the year ended
December 31, 1996 after the deduction of preferred dividends and amortization of
original issue discount of $2.7 million. The loss per share from continuing
operations was $.36 for the year ended December 31, 1995 after the deduction of
preferred dividends and amortization of original issue discount $2.7 million.
The loss per share from discontinued operations was $.02 for the year ended
December 31, 1995. The total loss per share was $.36 for the year ended December
31, 1996 compared to $.38 for the year ended December 31, 1995. 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 (totaling $13,191,116 as of December 31, 1996) on the
Preferred Stock dividends is paid in full.
The Registrant had total assets of $.6 million at December 31, 1996,
compared to $1.1 million at December 31, 1995. The reduction in assets from 1995
was primarily due to the funding of the 1996 cash operating losses and the cash
payments made in 1996 resulting from the RTC settlement that was booked in 1995.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Registrant's investments are not in instruments that warrant disclosure of
market risks, e.g. interest rate risk, foreign currency exchange risk, commodity
price risk or other similar risks.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Registrant's Consolidated Financial Statements for the year ended
December 31, 1997 is filed as Exhibit 99 to this report.
Lefkowitz, Garfinkel, Champi & DiRienzo P.C. ("LGC&D") has been engaged by
the Registrant to audit the Registrant's financial statements for the year ended
December 31, 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the directors
of the Registrant. In February, 1997 Thomas F. Hogg, Winfield W. Major and James
V. Rosati were elected by the Board to serve as interim Directors of the
Registrant until the next meeting of shareholders for the purpose of electing
directors. (See "Market for the Registrant's Common Equity and Related
Stockholder Matters" for a discussion of the right of the holders of the
Registrant's Preferred Stock to elect 20% of the directors of the Registrant.)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Director Term
Name Age Principal Occupation Since Expires**
Howard W. Armbrust 70 Retired former Chairman, 1974 1995
Vargas Manufacturing
(jewelry manufacturer)
Bernard V. Buonanno, Jr. 60 Partner, Edwards & Angell (law 1979 1994
firm)
Partner, Riparian Partners
(investment firm)
Director, A.T. Cross Company
Robert E. DeBlois 64 Chairman of DB Companies, Inc. 1974 1995
and its subsidiaries (gasoline
and convenience store chain)
Thomas P. Dimeo 67 Chairman, The Dimeo Group of 1974 1995
Companies (construction industry)
Thomas F. Hogg * 50 Chief Financial Officer, R.I. 1997 ----
Housing & Mortgage Finance
Corporation (state chartered
housing finance agency)
Allen H. Howland 77 Chairman, Original Bradford Soap 1992*** 1994
Works, Inc. (manufacturer of
private label soaps)
Beverly E. Ledbetter 54 Vice President and General 1981 1995
Counsel, Brown University
Winfield W. Major * 50 Counsel, Edwards & Angell (law 1997 ----
firm)
James V. Rosati * 48 Chief Executive Officer, 1997*** ---
Telecommunications Sector,
Plastics Division, Cookson Group
plc, Senior Vice President,
Cookson America, Inc.
(industrial manufacturing
company)
Alfred J. Verrecchia 55 President, Global Operations and 1987 1993
Director, Hasbro, Inc. (toy
manufacturer)
</TABLE>
* Elected to serve as interim directors until the next meeting of
shareholders.
** The Directors serve until the end of their term or until such time as a
successor is elected. No election of Directors has been held since 1992.
*** Mr. Howland also served as a Director from 1981 to 1991; Mr. Rosati also
served as a Director from 1991 to 1993.
With respect to information regarding executive officers of the Registrant,
none of the officers of Registrant would be considered executive officers
thereof 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 Registrant and its subsidiaries for
the year ended December 31, 1997. Immediately following the Bank Closing, all of
the executive officers of the Registrant 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 Registrant under the Rules.
Meetings and Compensation of Board of Directors
For the fiscal year ended December 31, 1997, Directors received no
compensation for serving on the Board or attending committee meetings.
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 Registrant to be beneficial owners of more than five percent (5%) of any
class of outstanding voting securities of the Registrant.
Amount and Nature of Beneficial Ownership of Common Stock (1)
<TABLE>
<CAPTION>
Sole Shared Sole Shared Percent
Voting Voting Dispositive Dispositive of Class
Power Power Power Power
<S> <C> <C> <C> <C> <C>
(a) Old Stone Employee
Stock Ownership Plan 0 0 0 1,871,514.898(2) 22.56
c/o Federal Deposit
Insurance Corp.
101 East River Drive
East Hartford, CT 06128-0402
(b) Manticore Properties, LLC (3) 1,606,968 1,606,968 19.37
Gotham Partners, L.P.
Gotham Partners II, L.P.
110 East 42nd Street
18th Floor
New York, NY 10017
Gotham Partners
International Advisors, LLC (4) 152,200 152,200 1.83
(same as above)
</TABLE>
(1) This information with respect to beneficial ownership is based upon
information obtained by the Registrant as of December 31, 1997 from (a) the
FDIC as Trustee of the ESOP (the decrease from the previous year is a
result of the tender offer by Manticore Properties, LLC); and (b) Manticore
Properties, LLC as filed with the SEC on Amendment No. 2 to Schedule 13D
dated February 25, 1998.
(2) Participants have sole voting power over all shares of Common Stock which
have been allocated to their accounts. The Ninth Amendment to the ESOP
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.
(3) Manticore Properties, LLC also has sole voting and dispositive power with
respect to 297,018 shares of Preferred Stock (28.4% of the class), which it
shares with Gotham I and Gotham II, and which are convertible into 198,012
shares of Common Stock.
(4) Advisors also has sole voting and dispositive power with respect to 19,800
shares of Preferred STock, which are convertible into 13,209 shares of
Common Stock.
Security Ownership of Directors
The following table sets forth information furnished to the Registrant by
all present Directors regarding amounts of Common Stock of the Registrant owned
by them on December 31, 1997. Only Mr. Rosati, who owns 2,000 shares directly
(see footnote (3), below), 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 Person in Group Number of Shares Percent of Class
- -------------------------------- ---------------- ----------------
Howard W. Armbrust 2,000 *
Bernard V. Buonanno, Jr. 4,613 *
Robert E. DeBlois 4,742 *
Thomas P. Dimeo 11,000 (1) *
Thomas F. Hogg 6,204 (5) *
Allen H. Howland 2,557 (2) *
Beverly E. Ledbetter 333 *
Winfield W. Major 7,476.6258 (5) *
James V. Rosati 23,267.912 (3)(5) *
Alfred J. Verrecchia 1,526 *
All current Directors of
the Corporation
as a group (10 persons)
*
TOTAL of the Above Shares
63,419.537 (4)(5)
- --------------------
(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) Although the number of shares of Common Stock is slightly greater and the
number of shares of Preferred Stock is slightly less than the number of
shares reported by Mr. Rosati at the time of last year's filing, he neither
purchased nor sold shares of the Registrant's stock during 1997. At the
time of last year's filing, the Registrant did not have access to all
records regarding Mr. Rosati's stock ownership. The number of shares
previously reported was based on Mr. Rosati's best estimate as to the
number of shares he held at the time.
(4) Includes shares held jointly, or in other capacities, as to which, in some
cases, beneficial ownership is disclaimed.
(5) Excludes shares held in the name of the FDIC as trustee of the Old Stone
ESOP in which 10,659.107, 11,062.824 and 11,449.10 shares are allocated to
the accounts of Messrs. Hogg, Major and Rosati, respectively.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Interests of Directors, Officers and Others in Certain Transactions
Mr. Buonanno is a partner of, and Mr. Major is Counsel to, Edwards &
Angell, a law firm retained by the Registrant on various legal matters. The
dollar amount of fees paid to Edwards & Angell during 1997 did not exceed 5% of
Edwards & Angell's gross revenues for 1997.
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, 1997 and 1996
Consolidated Statements of Operations - Years ended December
31, 1997, 1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) - Years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flow - Years ended December
31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Independent Auditors' Report
(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
Report on Form 8-K filed by the Registrant on December 30,
1997 regarding the Tender Offer by Manticore Properties, LLC.
Report on Form 8-K/A filed by the Registrant on January 6,
1998 with respect to the Tender Offer.
(c) Exhibit Index. The following Exhibits to this Annual Report on
Form 10-K are hereby incorporated by reference herein:
Exhibit
(21) Subsidiaries of the Registrant
(27) Financial Data Schedule
(99) Consolidated Financial Statements for the
Registrant for the years ended December
31, 1997, 1996 and 1995
(d) All other financial statement schedules required by Regulation
S-X promulgated by the SEC are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
<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 27, 1998 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 27, 1998.
/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/ Thomas F. Hogg Director
- --------------------------
Thomas F. Hogg
/s/ Allen H. Howland Director
- --------------------------
Allen H. Howland
/s/ Beverly E. Ledbetter Director
- --------------------------
Beverly E. Ledbetter
/s/ Winfield W. Major Director
- --------------------------
Winfield W. Major
/s/ James V. Rosati Director
- --------------------------
James V. Rosati
/s/ Alfred J. Verrecchia Director
- --------------------------
Alfred J. Verrecchia
<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 27, 1998 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 27, 1998.
- -------------------------- President and Treasurer
Geraldine L. Nelson
- -------------------------- Director
Howard W. Armbrust
- -------------------------- Director
Bernard V. Buonanno, Jr.
- -------------------------- Director
Robert E. DeBlois
- -------------------------- Director
Thomas P. Dimeo
- -------------------------- Director
Thomas F. Hogg
- -------------------------- Director
Allen H. Howland
- -------------------------- Director
Beverly E. Ledbetter
- -------------------------- Director
Winfield W. Major
- -------------------------- Director
James V. Rosati
- -------------------------- Director
Alfred J. Verrecchia
EXHIBITS
Exhibit 21
SUBSIDIARIES OF OLD STONE CORPORATION
Old Stone Securities Company, a Rhode Island corporation, is the Company's only
significant subsidiary.
EXHIBIT 27
FINANCIAL DATA SCHEDULE
(See Attached Schedule)
EXHIBIT 99
OLD STONE CORPORATION CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995
(See Attached Statement)
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000074273
<NAME> Edwards & Angell
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 27,000
<RECEIVABLES> 34,000
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 251,000
<PP&E> 7,000
<TOTAL-ASSETS> 368,000
<SHORT-TERM> 0
<PAYABLES> 1,184,000
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
20,300,000
<COMMON> 8,300,000
<OTHER-SE> (21,116,000)
<TOTAL-LIABILITY-AND-EQUITY> 368,000
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 18,000
<COMMISSIONS> 164,000
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 155,000
<INCOME-PRETAX> (213,000)
<INCOME-PRE-EXTRAORDINARY> (213,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (213,000)
<EPS-PRIMARY> (.35)
<EPS-DILUTED> (.35)
</TABLE>
Exhibit 99
OLD STONE CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
CONTENTS
Independent Auditors' Report ............................................ 1
Consolidated Balance Sheets ............................................. 2
Consolidated Statements of Operations ..................................... 3
Consolidated Statements of Changes in Stockholders' Equity (Deficit) ...... 4
Consolidated Statements of Cash Flows ..................................... 5
Notes to Consolidated Financial Statements ................................ 6-15
<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, 1997 and 1996, and the related consolidated
statements of operations, changes in stockholders' equity (deficit) and cash
flows for the years ended December 31, 1997, 1996 and 1995. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to report 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 report.
As discussed in Note 1, 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 1997, 1996 and 1995 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 1997, 1996 and 1995 consolidated financial statements.
Lefkowitz, Garfinkel, Champi & DeRienzo P.C.
Providence, Rhode Island
January 23, 1998
March 20, 1998 for Note 8
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1997 AND 1996
($ in thousands)
ASSETS
1997 1996
--------- ---------
Cash
$ 27 $ 33
Short-term investments 251 401
Loans receivable (net of reserve for
loan losses of $52 for
1997 and $32 for 1996) 34 56
Accrued interest receivable 1
Other assets 56 79
--------- ---------
$ 368 $ 570
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Other Liabilities $ 1,184 $ 1,173
--------- ---------
Commitments and contingencies (Notes 1, 6, 7 and 8)
Redeemable preferred stock:
Preferred stock, series B, $1 par value; 1,046,914
shares authorized, issued and outstanding
(Liquidation value $20,938) 20,300 20,104
--------- ---------
Stockholders' equity (deficit):
Common stock, $1 par value; 25,000,000 shares
authorized; 8,300,175 shares issued 8,300 8,300
Additional paid-in capital 91,685 91,881
Surplus 30,000 30,000
Accumulated deficit (149,958) (149,745)
Treasury stock, at cost, 54,000 shares (1,143) (1,143)
--------- ---------
(21,116) (20,707)
--------- ---------
$ 368 $ 570
========= =========
See notes to consolidated financial statements
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
($ in thousands except for per share data)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income:
Interest income $ 18 $ 20 $ 42
Securities gains, net 50 41
Commission income 164 156 165
Other income 15 25 23
------- ------- -------
197 251 271
------- ------- -------
Expenses:
Salaries and employee benefits 155 168 166
Net occupancy expense 18 21 28
Equipment expense, including depreciation 3 13 14
Other expenses 227 342 343
------- ------- -------
403 544 551
------- ------- -------
Loss from continuing operations before income taxes (206) (293) (280)
Income taxes 7 6 9
------- ------- -------
Loss from continuing operations (213) (299) (289)
Loss from discontinued operations (182)
Net loss $ (213) $ (299) $ (471)
======= ======= =======
Net loss available for common stockholders $(2,921) $ (3,007) $(3,179)
======= ======= =======
Loss per share:
Continuing operations $ (.35) $ (.36) $ (.36)
Discontinued operations (.02)
------- ------- -------
Total $ (.35) $ (.36) $ (.38)
======= ======= =======
Average common shares outstanding 8,297,046 8,297,046 8,297,046
=========== ========== =========
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
($ in thousands)
Additional
Common paid-in Accumulated Treasury
stock capital Surplus deficit stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $ 8,300 $ 92,274 $ 30,000 $ (148,975) $ (1,143) $ (19,544)
Net loss (471) (471)
Accretion of discount on
preferred stock, Series B (197) (197)
--------- -------- ------- --------- -------- ----------
8,300 92,077 30,000 (149,446) (1,143) (20,212)
Balance, December 31, 1995
(299) (299)
Net loss
(196) (196)
--------- -------- ------- --------- --------- ----------
Accretion of discount on
preferred stock, Series B 8,300 91,881 30,000 (149,745) (1,143) (20,707)
Balance, December 31, 1996 (213) (213)
Net loss (196) (196)
--------- -------- ------- --------- -------- ----------
Accretion of discount on
preferred stock, Series B $ 8,300 $ 91,685 $ 30,000 $ (149,958) $ (1,143) (21,116)
========== =========== =========== ============== ========== =========
Balance, December 31, 1997
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
($ in thousands)
1997 1996 1995
------- ------- -----
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (213) $ (299) $ (471)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for loan losses 20 18 14
Depreciation 3 4 7
Increase in:
Accrued interest receivable (1)
Other liabilities 11 17
Decrease in:
Accrued interest receivable 1 6
Other assets 20 205 277
Other liabilities (196)
----- ----- -----
Net cash used in operating activities (158) (262) (157)
Cash flows from investing activities:
Net decrease in investments 150 23 373
Net decrease in loans 2 2 27
Acquisition of premises and equipment (2) (3)
----- ----- -----
Net cash provided by investing activities 152 23 397
----- ----- -----
Increase (decrease) in cash (6) (239) 240
Cash, beginning of period 33 272 32
----- ----- -----
Cash, end of period $ 27 $ 33 $ 272
----- ----- -----
See notes to consolidated financial statements.
</TABLE>
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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 under capitalization. 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 Federal Deposit Insurance
Corporation ("FDIC"), as successor-in-interest to the RTC, continues to act as
conservator of the remaining assets and liabilities of Old Stone Federal.
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.
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.
The accompanying 1997, 1996 and 1995 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
$21,100,000 at December 31, 1997 and is subject to a number of commitments and
contingencies, as follows:
The Company's sole remaining active subsidiary incurred a loss of
approximately $71,000 in 1997. Management does not expect these operating
results to improve in the near future to a level which would provide significant
capital or cash flow to the Company from this subsidiary.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. Description of business, basis of presentation and summary of significant
accounting policies (continued):
Description of business and basis of presentation (continued):
The Company may be subject to legal proceedings related to its management
of the Bank prior to receivership.
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, unless the Company is successful in its
litigation against the United States Government (see also Note 6).
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.
Until the outstanding uncertainties discussed above are resolved, management has
invested, and intends to continue to invest, the Company's assets on a
short-term basis. The Company's Board of Directors has made no decision at the
present time as to whether or not it would be appropriate for the Company to
liquidate its assets.
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 and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and cash equivalents:
The Company considers all highly liquid investments with a maturity of three
months or less when purchased, excluding money market funds, to be cash
equivalents. There were no cash equivalents at December 31, 1997 or 1996.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. Description of business, basis of presentation and summary of significant
accounting policies (continued):
Short-term investments:
The Company's short-term investments consist principally of investments in money
market funds and are classified as available for sale. Accordingly, short-term
investments are carried at market value, which approximates cost. These money
market funds primarily hold investments in U.S. Government securities in the
name of the fund.
The cost of investments sold is determined using the specific identification
method.
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.
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, in 1996 and prior years and is expected to continue to do so
in 1997.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. Description of business, basis of presentation and summary of significant
accounting policies (continued):
Income taxes (continued):
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 continuing losses incurred by the Company
and its sole active surviving subsidiary.
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 outstanding during each period presented.
2. Loss from discontinued operations:
The Resolution Trust Corporation (the "RTC") and the former directors and
officers of Old Stone Bank executed a settlement and release agreement dated
December 31, 1995. The settlement has been reported as a loss from
discontinued operations in the accompanying 1995 statement of operations.
The loss from discontinued operations is comprised of the following:
RTC settlement amount $ 100,000
Legal fees 82,492
===========
$ 182,492
Upon the execution of the agreement with the RTC, the OTS signed a release
of claims against former directors and officers of Old Stone Bank.
<PAGE>
<TABLE>
<CAPTION>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
3. Loss per share:
The calculation of loss per share is as follows (dollars in thousands,
except for per share amounts):
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net loss $ (213) $ (299) $ (471)
Required dividends and accretion of
discount on Series B preferred stock 2,708 2,708 2,708
--------- --------- ---------
Net loss applicable to common stock $(2,921) $(3,007) $(3,179)
========= ========= =========
Allocation of loss:
Continuing operations $(2,921) $(3,007) $(2,997)
Discontinued operations (182)
Loss applicable to common stock $(2,921) $(3,007) $ (3,179)
========= ========= =========
Average shares outstanding 8,297,046 8,297,046 8,297,046
========= ========= =========
Loss per share:
Continuing operations $ (.35) $ (.36) $ (.36)
Discontinued operations (.02)
Total $ (.35) $ (.36) $ (.38)
========= ========== =========
The Company's common stock ceased trading on national exchanges shortly
after the Bank was placed in receivership by the OTS.
</TABLE>
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4. Other assets and liabilities:
The following comprise other assets (dollars in thousands):
December 31,
1997 1996
---- ----
Cash deposits held by escrow agents on behalf
of the Company $ 33 $ 33
Premises and equipment, less accumulated depreciation
of $19 and $22 in 1997 and 1996, respectively 7 10
Customer and other receivables and prepaids 16 36
-- --
Total $ 56 $ 79
==== =====
The following comprise other liabilities (dollars in thousands):
December 31,
1997 1996
---- ----
Due Old Stone Federal (Note 7) $ 478 $ 478
Accrued state income taxes 607 607
Accounts payable and accrued expenses 99 88
-- --
Total $ 1,184 $ 1,173
======= =======
5. Income taxes:
The Company is the parent company of an affiliated group of corporations
that file consolidated income tax returns. For the years ended December 31,
1997, 1996 and 1995, the tax calculations do not include the operations of
the Bank, as they relate to discontinued operations that are not presented
in 1997, 1996 and 1995.
<PAGE>
<TABLE>
<CAPTION>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
5. Income taxes (continued):
The components of income tax expense for each of the years ended December 31
are as follows (dollars in thousands):
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current tax expense $ 7 $ 6 $ 9
Deferred tax benefit (66) (100) (160)
Benefit of net operating loss not
recognized, deferred 66 100 160
--- ---- ---
Total $ 7 $ 6 $ 9
==== ==== ====
The differences between income tax expense related to continuing operations
and the amount computed by applying the statutory federal income tax rate to
loss from continuing operations are as follows (dollars in thousands):
1997 1996 1995
---- ---- ----
Loss from continuing operations before
income taxes $ (206) $ (293) $ (280)
====== ====== ======
Tax benefit at statutory rate $ (70) $ (100) $ (95)
Increase in taxes resulting from:
State tax, net of federal benefit 7 6 6
Benefit of net operating loss not recognized 70 100 98
--- ---- --
Income tax expense, continuing operations $ 7 $ 6 $ 9
==== ==== ===
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities.
</TABLE>
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
5. Income taxes (continued):
At December 31, 1997, the Company has net operating loss carryforwards available
for tax reporting purposes amounting to approximately $1,045,000. These net
operating loss carryforwards expire in various years through 2012.
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, 1997 and
1996.
Income taxes paid in 1997, 1996 and 1995 totalled approximately $7,000, $6,000
and $9,000, respectively.
6. 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, 1997, cumulative preferred dividends of $15,703,710 ($15.00
per share) have not been declared or paid.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
7. 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
noncontributory 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.
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 FDIC, as
successor-in-interest to the RTC, is currently in the process of planning
the termination of the ESOP. The transfer of responsibility for the defined
benefit pension plan and the termination of the ESOP are not expected to
have any effect on the Company.
Amounts due Old Stone Federal or its successor-in-interest (see Note 4)
consist of pension contribution allocations of approximately $478,000 at
December 31, 1997 and 1996.
8. Other commitments and contingencies:
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
supervisory goodwill and authorized Plaintiffs to treat those credits and
supervisory goodwill as regulatory capital on the Bank's financial
statements.
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 and supervisory goodwill as part of
regulatory capital and caused the Bank to immediately write off
approximately $80,000,000 of such capital credits and supervisory goodwill.
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.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
8. Other commitments and contingencies (continued):
The Defendant has filed a counterclaim against the Company for alleged
breach of its net worth maintenance agreement. The Company has filed an
answer denying such counterclaim. Following the Bank closing, the Bank's
claims and the claims of the Company were split into two separate actions.
The Company's claims are separate and distinct from the claims of the Bank.
An agency of the Defendant serves as receiver for the Bank and is
maintaining the Bank's claims against the Defendant in a separate action.
There are several such cases pending before the U.S. Court of Federal
Claims. The Company's case is dependent upon the outcome of other cases
which are being litigated on damages.
Subsequent to the year ended December 31, 1997, the Company filed a motion
for summary judgment. The Defendant has not responded as of March 20, 1998.
No prediction as to the timing or the outcome of this case can be made at
this time.
9. Fair value of financial instruments:
The fair values of cash, receivables and payables approximate the carrying
amounts of such instruments due to their short maturities.
All of the Company's financial instruments are held for nontrading purposes.
<PAGE>
CLIENT ACCOUNT #
COPIES TO CLIENT
PERSONAL AND CONFIDENTIAL
