SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from _______ to
___________.
Commission file number 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
Incorporation or Organization) No.)
957 Warren Avenue, East Providence, RI 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:
Common Stock ($1.00 par value)
Cumulative Voting Convertible Preferred Stock, Series B
($20.00 Stated Value, $1.00 Par Value)
Securities registered pursuant to Section 12(g) of the Act: None
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 twelve 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 Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
Since there is no ascertainable market value for the Registrant's stock, the
Registrant is unable to state the aggregate market value of the voting and
non-voting common equity held by non-affiliates. See Item 5.
As of the close of business on April 13, 2000, 8,297,046 shares of the
Registrant's Common Stock were outstanding.
Documents Incorporated by Reference: None.
<PAGE>
Table of Contents
Description Page Number
PART I
Item 1 Business.........................................................1
Item 2 Properties.......................................................2
Item 3 Legal Proceedings................................................3
Item 4 Submission of Matters to a Vote of Security Holders..............4
PART II
Item 5 Market for the Registrant's Common Equity and Related
Stockholder Matters.............................................5
Item 6 Selected Financial Data..........................................5
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................7
Item 7A Quantitative and Qualitative Disclosures About Market
Risk............................................................9
Item 8 Financial Statements and Supplementary Data......................9
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............................9
PART III
Item 10 Directors and Executive Officers of the Registrant..............10
Item 11 Executive Compensation..........................................12
Item 12 Security Ownership of Certain Beneficial Owners
and Management................................................13
Item 13 Certain Relationships and Related Transactions..................15
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................................16
Signatures....................................................................17
<PAGE>
PART I
ITEM 1. BUSINESS
Background
Old Stone Corporation "we", "us", "our" is a general business corporation
incorporated in 1969 under the laws of the State of Rhode Island. Our principal
offices are located at 957 Warren Avenue, East Providence, Rhode Island 02914.
On January 29, 1993, the Office of Thrift Supervision ("OTS") declared our
principal subsidiary, Old Stone Bank, a Federal Savings Bank, a stock savings
bank organized under the laws of the United States ("Bank"), insolvent, and
appointed the Resolution Trust Company ("RTC") as receiver ("Bank Closing"). The
RTC formed a bridge bank, Old Stone Federal Savings Bank ("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 our assets. Immediately
following the Bank Closing, all of our officers resigned and were hired by the
Bridge Bank. Our Board of Directors elected a limited slate of new officers on
March 8, 1993 who have served since that time. See Item 10 below, "Directors and
Executive Officers of the Registrant." We and the Bank have instituted a suit
against the United States in connection with the Bank Closing. See Item 3 "Legal
Proceedings" below.
We continue to hold an equity interest in Old Stone Securities Company
("Old Stone Securities"). See "Significant Subsidiary" below. We have no equity
interest in any other significant entity.
Significant Subsidiary
Our only surviving active subsidiary following the Bank Closing is Old
Stone Securities, a registered securities broker-dealer which provides brokerage
services to retail and institutional clients.
Regulation
In our capacity as registered transfer agent for the shares of our Common
Stock and Preferred Stock, we are 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, 1999, Old Stone Securities employed 3 persons, all of
whom were full-time, two of whom also serve as officers of Old Stone
Corporation, and who handle certain administrative functions on our behalf.
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, L.L.C. ("Manticore"), which
is wholly-owned by Gotham Partners, L.P. ("Gotham I") and Gotham Partners, II,
L.P. which was subsequently dissolved on October 1, 1998 ("Gotham II"), to
purchase any and all shares of our Common Stock for $1.00 per share and our
Preferred Stock for $4.00 per share. Based upon subsequent filings with the SEC
by Manticore, during the tender offer period Manticore purchased approximately
1,405,955.529 shares of Common Stock and 297,018 shares of Preferred Stock that
were tendered by our shareholders.
Subsequent to that time, according to filings by Manticore and its
affiliated companies (Gotham I, Gotham III, Gotham International Advisors,
L.L.C. ("Advisors") and Gotham Partners International Ltd.) (collectively, the
"Funds")), the Funds have continued to purchase shares of the Common Stock and
the Preferred Stock in the open market.
According to the Funds' most recent filing, as of March 31, 2000, Manticore
had sole voting and dispositive power with respect to 1,407,144 shares of the
Common Stock and 299,016 shares of the Preferred Stock; Gotham I had sole voting
and dispositive power with respect to 337,723 shares and shared voting and
dispositive power with respect to 1,407,144 shares of the Common Stock and sole
voting power with respect to 4,600 shares and shared voting and dispositive
power with respect to 299,016 shares of the Preferred Stock; Gotham III had sole
voting and dispositive power with respect to 24,341 shares, and shared voting
and dispositive power with respect to 1,407,144 shares, of the Common Stock and
sole voting and sole dispositive power with respect to 1,650 shares of Preferred
Stock and shared voting and dispositive power with respect to 299,016 shares of
the Preferred Stock; and Advisors had sole voting and sole dispositive power
with respect to 692,249 shares of the Common Stock and 166,664 shares of the
Preferred Stock.
Gotham Holdings II, L.L.C. had shared voting and dispositive power with
respect to 1,407,144 shares of Common Stock and 299,016 shares of Preferred
Stock. Gotham Holdings III, L.L.C. had sole voting and sole dispositive power
with respect to 71,625 shares of Common Stock and 18,184 shares of 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 $850.00, the cost of
which we share with Old Stone Securities.
ITEM 3. LEGAL PROCEEDINGS
We are not aware of any material pending legal proceedings to which we or
Old Stone Securities or their respective properties, are a party or were a party
during the fourth quarter of the fiscal year ended December 31, 1999, 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, Old Stone 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 1980s, 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, we entered into a Net Worth
Maintenance Stipulation in which we 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
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.
Defendant has filed a counterclaim against us for alleged breach of our net
worth maintenance agreement. We have filed an answer denying such counterclaim.
Following the Bank Closing, the Bank's claims and our claims were split
into two separate actions. Our claims are separate and distinct from the claims
of the Bank. An agency of Defendant, the Federal Deposit Insurance Corporation
("FDIC"), serves as receiver for the Bank and is maintaining the Bank's claims
against Defendant. On February 27, 1998, we filed a motion for summary judgment,
which the Defendant is opposing. There are several similar cases pending before
the U.S. Court of Federal Claims. Our 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 our case can be made at this time.
<PAGE>
On October 17, 1997, Old Stone Corporation and Arnold & Porter (the "Firm")
entered into a Retainer Agreement (the "Retainer Agreement") whereby the Firm is
entitled to receive compensation in the form of a contingent incentive fee (the
"Incentive Fee") based on the dollar amount of any award received by us directly
or through the Federal Deposit Insurance Corporation, as receiver for the Bank.
In addition to the Incentive Fee, the Firm shall be entitled to receive payment
of accrued fees for legal services rendered by the Firm.
In consideration for the agreements made by the Firm in the Retainer
Agreement, the Firm received an outright assignment of its percentage interest
in the right, title and interest in any judgment, settlement or consensual
arrangement we receive from the pending lawsuit. Furthermore, as security for
all amounts due to the Firm under the Retainer Agreement, we granted to the Firm
a first priority security interest in and to the litigation with the United
States and any proceeds derived from a judgment settlement or other consensual
resolution of the litigation. See also Item 11, "Executive Compensation."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders during the
fourth quarter of the fiscal year ended December 31, 1999.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Until January 29, 1993, our Common Stock was quoted on the NASDAQ National
Market and was traded under the symbol "OSTN" and currently lists under the
symbols OSTN and OSTNE.OB. In January, 1998 our Common Stock began trading on
the bulletin board and currently lists under the symbol OSTNE.OB. At April 13,
2000 there were approximately 41,943 shareholders of record. High and low stock
prices for the last year were:
1999 High Low
---- ---- ---
First Quarter 3 7/8 3 1/8
Second Quarter 3 3/4 2 3/4
Third Quarter 2 7/8 2 3/4
Fourth Quarter 2 7/8 2 3/4
We discontinued dividends to holders of our Common Stock and Preferred
Stock during the third quarter of 1991 and we do 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 our directors
constituting twenty percent (20%) of the total number of our directors at the
next meeting of stockholders at which directors are to be elected. Until the
aggregate deficiency of $20,728,898 as of December 31, 1999 is declared and
fully paid on the Preferred Stock, we may not declare any dividends or make any
other distributions on or redeem the Common Stock.
We did not sell any securities within the past three years which were not
registered under the Securities Act of 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA
On January 29, 1993, the OTS declared the Bank insolvent, and appointed the
RTC as receiver. See Item 1 above, "Business--Background." Bank operations are
not included in 1997, 1998 or 1999 operations. At December 31, 1998 and 1999 our
statements of financial condition do not include any assets or liabilities of
the Bank.
The following schedule of selected financial information includes the three
years ending December 31, 1997, 1998 and 1999.
<PAGE>
Old Stone Corporation three year comparison ($ in thousands, except for
share and per share amounts):
Fiscal Year Ended: December 31, December 31, December 31,
1997 1998 1999
INCOME:
Interest income $ 18 $ 19 $ 14
Other income 179 238 473
Total income 197 257 487
EXPENSES:
Interest expense 0 0 0
Salaries and benefits 155 157 167
Other operating expenses 248 213 350
Total expense 403 370 517
OPERATING (LOSS):
Operating (loss)
before income taxes $ (206) $ (113) (30)
Income taxes (credit) 7 0
NET (LOSS) (213) (113) (30)
Net loss available to common $ (2,921) $ (2,821) (2738)
Net Loss per share $ (.35) $ (.34) (.32)
Average shares outstanding 8,297,046 8,297,046 8,297,046
ASSETS:
Cash $ 27 $ 4 7
Short-term investments 251 105 156
Loans receivable, net 34 30 28
Other assets 56 276 292
----------- ----------- -----------
TOTAL $ 368 $ 415 483
<PAGE>
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
LIABILITIES:
Long-term debt 0 0
Other liabilities 1,184 1,344 1,442
Total liabilities 1,184 1,344 1,442
Redeemable preferred stock 20,300 20,496 20,692
Stockholders' equity (deficit) (21,116) (21,425) 21,651
----------- ----------- -----------
$ 368 $ 415 $ 483
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Current Operations
As a result of the Bank Closing, our present business activities include
our only surviving significant subsidiary, Old Stone Securities, a registered
securities broker-dealer which provides brokerage services to retail and
institutional clients. Management has invested, and intends in the future to
invest, our assets on a short-term basis. Our Board of Directors has continued
to monitor various expense saving and revenue enhancing measures at Old Stone
Securities designed and effectuated during 1998 and 1999.
Since the Bank Closing, and except for the operation of Old Stone
Securities, our primary expenses have been legal, insurance, accounting and
transfer agent expenses. At the end of 1996, we terminated our transfer agent
relationship with American Stock Transfer & Trust Company and brought this
activity in-house pursuant to a software license agreement with TS Partners,
Inc.
Results for Year Ended December 31, 1999 Compared to Year Ended December 31,
1998.
Interest income was $14,000 for the year ended December 31, 1999, compared
to $19,000 for the year ended December 31, 1998.
Other income, including securities gains, was $473,000 for the year ended
December 31, 1999, compared to $238,000 for the year ended December 31, 1998.
Since the Bank Closing, our 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 $517,000 for the year ended
December 31, 1999, compared to $370,000 for the year ended December 31, 1998.
Salaries and benefits for the year ended 1999 were $167,000 compared to
$157,000 for 1998.
Old Stone Securities' income before income taxes was $93,930 for the year
ended December 31, 1999, compared to a loss of $2,443 for the year ended
December 31, 1998. We reported a net loss of $30,000 for the year ended December
31, 1999 compared to a loss of $113,000 for the year ended December 31, 1998.
The loss per share was $.32 for the year ended December 31, 1999 after the
deduction of preferred dividends and amortization of original issue discount of
$2.7 million. The loss per share was $.34 for the year ended December 31, 1998
after the deduction of preferred dividends and amortization of original issue
discount of $2.7 million. No preferred or common dividends have been paid since
the second quarter of 1991 and we do not expect to pay dividends in the
foreseeable future. Further, we are prohibited from paying dividends on the
Common Stock until the aggregate deficiency (totaling $20,728,898 as of December
31, 1999) on the Preferred Stock dividends is paid in full.
Results for Year Ended December 31, 1998 Compared to Year Ended December 31,
1997.
Interest income was $19,000 for the year ended December 31, 1998, compared
to $18,000 for the year ended December 31, 1997.
Other income, including securities gains was $238,000 for the year ended
December 31, 1998, compared to $179,000 for the year ended December 31, 1997.
Since the Bank Closing, our 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 $370,000 for the year ended
December 31, 1998, compared to $403,000 for the year ended December 31, 1997.
Salaries and benefits for the year ended 1998 were $157,000 compared to
$155,000 for 1997.
We reported net loss of $2,443 for the year ended December 31, 1998
compared to a loss of $213,000 for the year ended December 31, 1997.
The loss per share was $.34 for the year ended December 31, 1998 after the
deduction of preferred dividends and amortization of original issue discount of
$2.7 million. The loss per share 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.
<PAGE>
The increase in the number of shares reported for average shares
outstanding from the previous reports for year-end 1997 (8,246,175) compared to
1998 (8,246,175) was not because of additional shares we issued. 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.
Liquidity and Capital Resources
At December 31, 1999, we had $.5 million in assets, $1.4 million in total
liabilities, $20.7 million in redeemable preferred stock, and a stockholder's
deficit of $21.7 million, compared to $.4 million in assets, $1.3 million in
total liabilities, $20.5 million in redeemable preferred stock and stockholders'
deficit of $21.4 million at December 31, 1998.
Our assets are currently being invested short-term, and expenses have been
reduced to a level that management believes is commensurate with our current
activities pending resolution of any potential claims. See "Current Operations"
above.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements for the year ended December 31, 1999
are filed as Exhibit 99 to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning our
directors. In February, 1997 Thomas F. Hogg, Winfield W. Major and James V.
Rosati were elected by the Board to serve as interim Directors 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 our Preferred Stock to elect 20% of our
directors).
The Directors serve until the end of their term or until such time as a
successor is elected. No election of Directors by stockholders has been held
since 1992.
Principal Director
Name Age Occupation Since
---- --- ---------- -----
Howard W. Armbrust 72 Retired former Chairman, 1974
Chairman, Vargas Manufacturing
(jewelry manufacturer)
Bernard V. Buonanno, Jr. 62 Partner, Edwards & Angell, 1979
LLP (law firm); Partner;
Riparian Partners (invest-
ment firm); Director, A.T.
Cross Company
Robert E. DeBlois 66 Retired former Chairman of 1974
DB Companies, Inc. and its
subsidiaries (gasoline and
convenience store chain)
Thomas P. Dimeo 69 Chairman, The Dimeo Group 1974
of Companies (construction
industry)
Thomas F. Hogg 52 Chief Financial Officer, 1997
R.I. Housing & Mortgage
Finance Corporation (state
chartered housing finance
agency)
Allen H. Howland 79 Chairman, Original Bradford 1992*
Soap Works, Inc. (manufacturer
of private label soaps)
Beverly E. Ledbetter 56 Vice President and General 1981
Counsel, Brown University
Winfield W. Major 52 General Counsel, Bacou USA, 1997
since June 29, 1998 (safety
products manufacturing
company); prior to June 29,
1998 counsel, Edwards & Angell,
LLP (law firm)
James V. Rosati 50 Chief Executive Officer, 1997*
Telecommunications Sector,
Plastics Division, Cookson
America, Inc. (industrial
manufacturing company)
Alfred J. Verrecchia 57 President, Global 1987
Operations and Director,
Hasbro, Inc. (toy manu-
facturer); Director Hasbro,
Inc.; Director Bacou USA,
Inc. since February 24, 1999
* 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 our executive officers, none of our
officers would be considered executive officers thereof under the rules of the
SEC.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
None of our officers would be considered executive officers under the rules
of the SEC. Accordingly, no disclosure of executive compensation is required.
Compensation of Board of Directors
For the fiscal year ended December 31, 1999, Directors received no current
compensation for serving on the Board or attending committee meetings. However
on October 23, 1998, the Board adopted a resolution authorizing deferred
compensation to be paid to the Directors, retroactive to January, 1993, in the
event that the Corporation achieve a certain level of recovery in the Court of
Claims litigation. The deferred compensation to be paid to the Directors would
be $5,000 per year and $500 per meeting. Since January, 1993, there have been 64
meetings of the Board or Committees thereof.
On October 23, 1998, our Board of Directors adopted a resolution
establishing a Litigation Management Committee to effectively prosecute our
claims against the United States of America in the Court of Federal Claims. This
Committee was established in order to manage the litigation, including working
with our outside attorneys, responding to discovery requests, providing
documentary evidence and testimony, and handling all day-to-day aspects of the
case, subject to the ultimate authority of the Board to approve any major
strategic decision in the case, including settlement, appeal or withdrawal of
the suit. Four members of the Board were appointed to this Committee: Bernard V.
Buonanno, Jr., Thomas F. Hogg, Winfield W. Major and James V. Rosati.
In consideration for their efforts in serving on the Committee, the members
collectively will be entitled to receive compensation of between $800,000 and
$2,200,000, contingent upon our achieving a certain threshold of award and then
progressively receiving certain levels of awards via judgment or settlement in
the litigation (the "Recovery").
The members of the Committee shall also be reimbursed currently for their
reasonable out-of-pocket expenses in connection with the litigation. The members
of the Committee shall not be liable to us for the services they render in this
regard unless they act with "deliberate intent to injure Old Stone Corporation
or its shareholders or with reckless disregard for the best interests of Old
Stone Corporation or its shareholders." Lastly, the members of the Committee
shall be indemnified by us with respect to any damages they incur as a result of
any action, suit or other proceeding arising out of or relating to the Court of
Claims litigation (subject to the same exception listed in the previous
sentence).
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
us to be beneficial owners of more than five percent (5%) of any class of
outstanding voting securities.
Amount and Nature of Beneficial Ownership of Common Stock (1)
<TABLE>
<CAPTION>
Sole Shared Sole Shared Percent of
Name and Address of Voting Voting Dispositive Dispositive Outstanding
Beneficial Owner Power Power Power Power Stock
<S> <C> <C> <C> <C> <C>
Manticore Properties, LLC (2) 366,231 1,606,488 366,231 1,606,488 21.93%
Gotham Partners, L.P.
Gotham Holdings, III, L.L.C.
Gotham Holding II, L.L.C.
110 East 42nd Street
18th Floor
New York, NY 10017
Gotham 803,358 803,358 8.93%
International Advisors, LLC (3)
(same as above)
Gotham Holdings III, L.L.C. 83,748 83,748 .93%
("Holdings III")
</TABLE>
(1) This information with respect to beneficial ownership is based upon
information obtained by us as of February 29, 2000 from Manticore
Properties, LLC as filed with the SEC on Form 4 dated March 9, 2000.
(2) Manticore Properties, LLC also has sole voting and sole dispositive power
with respect to 299.016 shares of Preferred Stock (28.56 % of the class),
which it shares with Gotham I, Gotham III and Holdings II, L.L.C., and
which are convertible into 199,344 shares of Common Stock.
(3) Advisors also has sole voting and sole dispositive power with respect to
166, 664 shares of Preferred Sock, which are convertible into 111,109
shares of Common Stock.
(4) Gotham Holdings, III, L.L.C. also has sole voting and sole dispositive
power with respect to 18,184 shares of Preferred Sock, which are
convertible into 12,123 shares of Common Stock.
Security Ownership of Directors
The following table sets forth information furnished to us by all present
Directors regarding amounts of Common Stock they owned on December 31, 1999.
Only Mr. Rosati, who owns 2,000 shares directly, 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 Beneficial Owner Number of Shares Percent of
Beneficially Outstanding
Owned Common Stock
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 16,916.107 (4) *
Allen H. Howland 2,557 (2) *
Beverly E. Ledbetter 133 *
Winfield W. Major 18,538.449 (4) *
James V. Rosati 34,717.012 (3)(4) *
Alfred J. Verrecchia 1,525 *
All current Directors of the Corporation 63,571.537 (4) *1.537
as a group (10 persons)
(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 2,000 shares owned by Mr. Rosati's spouse, as to which he
disclaims beneficial ownership.
(4) Includes shares formerly held in the name of the FDIC, as Trustee of the
ESOP, which were distributed to Messrs. Hogg, Major and Rosati,
respectively as participants in the Old Stone ESOP during 1999 by the FDIC
as Trustee for the ESOP and as of December 31, 1999 10,659.107, 11,062.824
and 11,449.10 of such shares are allocated to the accounts and are held
directly by them.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Interests of Directors, Officers and Others in Certain Transactions
Mr. Buonanno is a partner of Edwards & Angell, LLP, a law firm retained by
us on various legal matters. The dollar amount of fees paid to Edwards & Angell,
LLP during 1999 did not exceed 5% of the Edwards & Angell, LLP's gross revenues
for 1999.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)
(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, 1999 and 1998
Consolidated Statements of Operations - Years ended December
31, 1999, 1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) - Years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flow - Years ended December
31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Independent Auditors' Report
(2) None.
(3) List of Exhibits -- See Item 14(c) below.
(b) Reports on Form 8-K
None.
(c) Exhibit Index. The following exhibits to this Annual Report
on Form 10-K are hereby incorporated by reference herein:
Exhibit
(21) Incorporated by reference to Exhibit 21 our Form 10-K filed
April 15, 1999
(27) Financial Data Schedule
(99) Consolidated Financial Statements for Old Stone Corporation
for the years ended December 31, 1999, 1998 and 1997
(d) None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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)
April 14, 2000 By: /s/ Bernard V. Buonanno, Jr.
-----------------------------
Chairman
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 indicated on April 14, 1999.
/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>
EXHIBITS
EXHIBIT 27
FINANCIAL DATA SCHEDULE
EXHIBIT 99
OLD STONE CORPORATION CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 6,902
<RECEIVABLES> 27,765
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 155,852
<PP&E> 0
<TOTAL-ASSETS> 482,624
<SHORT-TERM> 0
<PAYABLES> 1,441,178
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
20,692,759
<COMMON> 8,300,125
<OTHER-SE> (29,952,437)
<TOTAL-LIABILITY-AND-EQUITY> 482,624
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 14,419
<COMMISSIONS> 472,463
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 167,305
<INCOME-PRETAX> (30,137)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,137)
<EPS-BASIC> (.32)
<EPS-DILUTED> (.32)
</TABLE>
EXHIBIT 99
OLD STONE CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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..................................6-16
provided by (used in) operating activities:
<PAGE>
Independent Auditors' Report
- ----------------------------
Board of Directors
Old Stone Corporation
East Providence, Rhode Island
We have audited the consolidated balance sheets of Old Stone Corporation and
Subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, changes in stockholders' equity (deficit) and cash
flows for the years ended December 31, 1999, 1998 and 1997. 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 1999, 1998 and 1997 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 1999, 1998 and 1997 consolidated financial statements.
/s/ Lefkowitz, Garfinkel, Champi & DeRienzo
Providence, Rhode Island
January 17, 2000
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1999 AND 1998
($ in thousands)
ASSETS
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
<S> <C> <C>
Cash $ 7 $ 4
Short-term investments 156 105
Loans receivable (net of reserve for loan losses
of $29 for 1999 and 1998) 28 30
Other assets 292 276
------------------- -------------------
$ 483 $ 415
=================== ===================
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
<S> <C> <C>
Other liabilities $ 1,442 $ 1,344
------------------- -------------------
Commitments and contingencies (Notes 1, 5, 6 and 7)
Redeemable preferred stock:
Preferred stock, series B, $1 par value;
1,046,914 shares authorized, issued and
outstanding (Liquidation value $20,938) 20,692 20,496
------------------- -------------------
Stockholders' equity (deficit):
Common stock, $1 par value; 25,000,000 shares
authorized; 8,351,046 shares issued 8,300 8,300
Additional paid-in capital 91,293 91,489
Accumulated deficit (120,101) (120,071)
Treasury stock, at cost, 54,000 shares (1,143) (1,143)
------------------- -------------------
(21,651) (21,425)
------------------- -------------------
$ 483 $ 415
=================== ===================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
($ in thousands except for per share data)
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ----------------- ----------------
Income:
<S> <C> <C> <C>
Interest income $ 14 $ 19 $ 18
Commission income 436 218 164
Other income 37 20 15
---------------- ----------------- ----------------
487 257 197
---------------- ----------------- ----------------
Expenses:
Salaries and employee benefits 167 157 155
Clearance fees and bank charges 148 80 65
Professional fees 91 68 91
Insurance 18 19 20
Net occupancy expense 10 12 18
Equipment expense, including depreciation 10 9 3
Other expenses 73 25 58
---------------- ----------------- ----------------
517 370 410
---------------- ----------------- ----------------
Net loss $ (30) $ (113) $ (213)
================ ================= ================
Net loss available for common stockholders $ (2,738) $ (2,821) $ (2,921)
================ ================= ================
Loss per share $ (.33) $ (.34) $ (.35)
================ ================= ================
Average common shares outstanding 8,297,046 8,297,046 8,297,046
================ ================= ================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
($ in thousands)
<TABLE>
<CAPTION>
Additional
Common paid-in Accumulated Treasury
stock capital Deficit stock Total
------------ ------------- ----------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 8,300 $ 91,881 $ (119,745) $ (1,143) $ (20,707)
Net loss (213)
Accretion of discount on
preferred stock, Series B
(196) (213) (196)
------------ ------------- ----------------- ------------ -------------
Balance, December 31, 1997 8,300 91,685 (119,958) (1,143) (21,116)
Net loss (113) (113)
Accretion of discount on
preferred stock, Series B
(196) (196)
------------ ------------- ----------------- ------------ -------------
Balance, December 31, 1998 8,300 91,489 (120,071) (1,143) (21,425)
Net loss (30) (30)
Accretion of discount on
preferred stock, Series B
(196) (196)
------------ ------------- ----------------- ------------ -------------
Balance, December 31, 1999 $ 8,300 $ 91,293 $ (120,101) $ (1,143) $ (21,651)
============ ============= ================= ============ =============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
($ in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------------- --------------- ---------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss $ (30) $ (113) $ (213)
Adjustments to reconcile net loss to net cash provided by (used
Provision for:
Loan losses (14) 20
Bad debts 8
Depreciation 2 2 3
Increase in:
Other assets (26) (222)
Other liabilities 98 160 11
Decrease in:
Accrued interest receivable 1
Other assets 20
--------------- --------------- --------------
Net cash provided by (used in) operating activities 52 (187) (158)
--------------- --------------- --------------
Cash flows from investing activities:
Net decrease (increase) in investments (51) 146 150
Net decrease in loans 2 18 2
--------------- --------------- --------------
Net cash provided by (used in) investing activities (49) 164 152
--------------- --------------- --------------
Increase (decrease) in cash 3 (23) (6)
Cash, beginning of year 4 27 33
--------------- --------------- --------------
Cash, end of year $ 7 $ 4 $ 27
=============== =============== ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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 other liabilities and assets 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 (Old Stone), 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 1999, 1998 and 1997 consolidated financial statements
have been prepared assuming the Company will continue as a going
concern. As discussed previously, substantially all of the operations
of the Company have been discontinued. The Company has a net equity
deficiency of approximately $21,651,000 at December 31, 1999 and is
subject to a number of commitments and contingencies, as follows:
o The Company's sole remaining active subsidiary had income of
approximately $94,000 in 1999, and losses in the previous few
years. 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, 1999, 1998 AND 1997
1. Description of business, basis of presentation and summary of significant
accounting policies (continued):
Description of business and basis of presentation (continued):
o The Company may be subject to legal proceedings related to its
management of the Bank prior to receivership.
o 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 7).
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, 1999 or
1998.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. Description of business, basis of presentation and summary of significant
accounting policies (continued):
Short-term investments:
The Company's short-term investment securities 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.
Securities transactions:
As a securities broker/dealer, Old Stone is engaged in buying and selling
securities for a diverse group of institutional and individual
investors. Old Stone introduces transactions for clearance to another
broker/dealer on a fully disclosed basis.
Customers' securities transactions are recorded on a settlement date basis
with related commission income and expenses recorded on a trade date
basis. Securities transactions entered into for the account and risk
of Old Stone are recorded on a trade date basis.
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 at
8.25% and are collateralized by real estate or tangible property.
The accrual of interest on loans is discontinued at the time the loan is
90 days delinquent unless the credit is well-secured and in process of
collection. Loans are placed on nonaccrual or charged off at an
earlier date if collection of principal or interest is considered
doubtful.
All interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed against interest income. The
interest on these loans is accounted for on the cash basis or
cost-recovery method, until qualifying for return to accrual. Loans
are returned to accrual status when all the principal and interest
amounts contractually due are brought current and future payments are
reasonably assured.
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. Description of business, basis of presentation and summary of significant
accounting policies (continued):
Loans and reserve for loan losses (continued):
The allowance for loan losses is established as losses are estimated to
have occurred through a provision for loan losses charged to earnings.
Loan losses are charged against the allowance when management believes
the uncollectibility of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by
management and is based upon management's periodic review of the
collectibility of the loans in light of historical experience, the
nature of the loan portfolio, adverse situations that may affect the
borrower's ability to repay, estimated value of any underlying
collateral and prevailing economic conditions. This evaluation is
inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available.
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, for 1998 and prior years and is expected to
continue to do so for 1999.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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.
Reclassifications:
Certain amounts in the 1998 and 1997 financial statements have been
reclassified to conform with the current year presentation.
2. Loss per share:
The calculation of loss per share is as follows (dollars in thousands,
except for per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ----------------- ------------------
<S> <C> <C> <C>
Net loss $ (1) $ (113) $ (213)
Net loss applicable to common stock $ (2,709) $ (2,821) $ (2,921)
================== ================= ==================
================== ================= ==================
Loss per share $ (.33) $ (.34) $ (.35)
================== ================= ==================
</TABLE>
The Company's common stock ceased trading on national exchanges immediately
after the Bank was placed in receivership by the OTS.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. Other assets and liabilities:
The following comprise other assets (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Restricted cash $ 248 $ 252
Premises and equipment, less accumulated depreciation of
$24 and $21 in 1999 and 1998, respectively
Customer and other receivables and prepaids 43 20
---------------- ----------------
Total $ 292 $ 276
================ ================
</TABLE>
Restricted cash represents funds held by the Company to be paid to holders
of the Company's called Series A and C preferred stock. During 1998, the
Company became aware of and received from a former stock transfer agent
of the Company $222,000 owed to holders of the Company's called Series C
preferred stock. The Company is currently in the process of evaluating
its responsibility with respect to these funds.
The following comprise other liabilities (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1999 1998
--------------- -----------------
<S> <C> <C>
Due Old Stone Federal (Note 6) $ 478 $ 478
Accrued state income taxes 607 607
Accounts payable and accrued expenses 80 7
Amounts due to holders of called Series A and C preferred stock
248 252
---------------- ----------------
Total $1,413 $ 1,344
</TABLE>
4. 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, 1999, 1998 and 1997, the tax calculations do not include
the operations of the Bank, as they relate to discontinued operations
that are not presented in 1999, 1998 and 1997.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
4. Income taxes (continued):
The components of income tax expense for each of the years ended December
31 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- ------------------
<S> <C> <C> <C>
Current tax expense $ - 0 - $ - 0 - $ - 0 -
Deferred tax benefit - 0 - (38) (72)
Benefit of net operating loss not recognized, ------------------
deferred - 0 - 38 72
----------------- ----------------- ------------------
Total $ - 0 - $ - 0 - $ - 0 -
================= ================= ==================
</TABLE>
The differences between income tax expense and the amount computed by
applying the statutory federal income tax rate to loss from operations
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- ------------------
<S> <C> <C> <C>
Loss from operations before income taxes $ (1) $ (113) $ (213)
================= ================= ==================
Tax benefit at statutory rate $ - 0 - $ (38) $ (72)
Increase in taxes resulting from benefit of net
operating loss not recognized - 0 - ---------------- ------------------
38 72
----------------- ---------------- ------------------
Income tax expense $ - 0 - $ - 0 - $ - 0 -
================= ================= ==================
</TABLE>
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.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
4. Income taxes (continued):
At December 31, 1999, the Company has net operating loss carryforwards
available for tax reporting purposes amounting to approximately
$1,158,000. These net operating loss carryforwards expire in various
years through 2013.
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, 1999 and 1998.
Income taxes paid in 1999, 1998 and 1997 totalled approximately $7,000 in
each year.
5. 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, 1999, cumulative preferred dividends of $20,728,897
($19.80 per share) have not been declared or paid.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
6. 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 administration of and payment of benefit
obligations under the defined benefit pension plan. The FDIC, as
successor-in-interest to the RTC, terminated the ESOP and, during 1999,
the FDIC distributed shares of the Company's common stock that were held
by the ESOP to ESOP participants as part of that process. 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.
At December 31, 1999 and 1998, amounts due Old Stone Federal or its
successor-in-interest (see Note 3) consist of prior years pension
contribution allocations of approximately $478,000.
7. 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, 1999, 1998 AND 1997
7. 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 of unrelated parties which are being litigated on damages.
In February 1998, the Company filed a motion for summary judgment, which
is currently pending before the Court. Discovery proceedings have been
completed as of August 1999. No prediction as to the timing or the
outcome of this case can be made at this time.
During 1998, the Board of Directors of the Company adopted a Resolution
establishing a Litigation Management Committee (the Committee) to
effectively pursue the Company's claims against the Defendant. Four
members of the Board were appointed to this committee.
The Committee was established in order to manage the Company's litigation,
including working with the Company's outside attorneys, responding to
discovery requests, providing documentary evidence and testimony, and
handling all day-to-day aspects of the case, subject to the ultimate
authority of the Board to approve any major strategic decision in the
case, including settlement, appeal or withdrawal of the suit.
In consideration for their efforts in serving on the Committee, the
members collectively will be entitled to receive compensation of between
$800,000 and $2,200,000, contingent upon the Company's receiving a
judgment or settlement in the litigation (the Recovery) in excess of
certain dollar thresholds.
The Company and a law firm (the Firm) have entered into a retainer
agreement dated October 17, 1997, (the Retainer Agreement) whereby the
Firm is entitled to receive the following compensation based on the
dollar amount of the Recovery by the Company or through the FDIC, as
receiver for the Bank, in the suit against the Defendant:
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
7. Other commitments and contingencies (continued):
Litigated judgment with a Recovery in any amount or a settlement with a
Recovery in excess of a dollar threshold specified within the Retainer
Agreement (the Specified Dollar Threshold):
o The Company shall pay the Firm an incentive fee at a rate of 10%
to 25% based on various dollar threshold levels relating to the
Recovery as stipulated in the Retainer Agreement.
o In addition, if the Recovery is less than twice the Specified
Dollar Threshold, fees for services rendered by the Firm shall be
paid to the Firm at a rate of one-third of the fees up to the
full fees, capped at $1,500,000, based on various dollar
threshold levels relating to the Recovery as stipulated in the
Retainer Agreement or if the Recovery is more than twice the
Specified Dollar Threshold, fees for services rendered by the
Firm shall be paid to the Firm without regard to any cap on such
fees.
Settlement of suit with the Recovery being equal to or less than the
Specified Dollar Threshold:
o The Company shall pay the Firm at a rate of 10% to 20% based on
various dollar threshold levels relating to the Recovery as
stipulated in the Retainer Agreement.
o The Company shall pay the Firm actual fees for services rendered
by the Firm. Such fees shall be capped at $1,500,000.
Other:
o In addition, the Company shall pay the Firm 50% of any attorney
fees awarded the Company relating to its suit against the
Defendant.
In consideration for agreements made by the Firm in the Retainer Agreement,
the Firm received an (outright) assignment of its percentage interest
in the Company's right, title and interest in any judgment, settlement
or consensual arrangement from the suit. Furthermore, as security for
all amounts due to the Firm under the Retainer Agreement, the Company
granted the Firm a first priority security interest in and to the
litigation with the Defendant and any proceeds derived from a
judgment, settlement or other consensual resolution of the litigation.
The Company has an oral agreement with another law firm to pay for legal
services relating to the suit against the United States on a
contingency basis that will be determined by the Recovery in the suit
against the United States. It is the intent of the Company and the law
firm to formalize their oral understanding in writing. As of December
31, 1999, unbilled legal fees for services rendered by this firm
totalled approximately $72,000.
<PAGE>
OLD STONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. 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>
Independent Auditors' Consent
We consent to the inclusion of our Consolidated Financial Statements for
the Years ended December 31, 1999, 1998 and 1997 in this Annual Report on Form
10-K of Old Stone Corporation for the year ended December 31, 1999.
/s/ Lefkowitz, Garfinkel, Champi & DeRienzo P.C.
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Lefkowitz, Garfinkel, Champi & DeRienzo P.C.
