Page 2 THE TRUST On September 25, 1985, pursuant to the Plan of Complete Liquidation and Dissolution of City Investing Company ("City") approved by stockholders of City on December 12, 1984, City transferred all its remaining assets and liabilities ("Trust Estate") to the City Investing Company Liquidating Trust (the "Trust") to assure compliance with Section 337 of the Internal Revenue Code. The common stock transfer books of City were permanently closed on September 25, 1985, and the holders of record of common stock of City as of the close of business on that date became holders of beneficial interest in the Trust on the basis of one unit of beneficial interest for each share of common stock of City held on September 25, 1985. After September 25, 1985, the outstanding certificates that formerly represented shares of common stock of City are deemed to evidence the same number of units of beneficial interest in the Trust.
The City Investing Company Liquidating Trust Agreement ("Trust Agreement") provides that the Trust is organized for the sole purpose of liquidating the Trust Estate in a manner calculated to conserve and protect the Trust Estate, and to collect and distribute to the beneficiaries proceeds therefrom in as prompt and orderly a fashion as possible after the payment of, or provision for, expenses and liabilities. The Trustees are required to distribute to the beneficiaries cash or other property comprising a portion of the Trust Estate as the Trustees may, in their sole discretion, determine may be distributed without detriment to the ability of the Trust to pay or discharge claims, expenses, charges, liabilities and obligations. The existence of the contingent liabilities referred to in Note 7 to the Trusts's Financial Statements will affect the timing of future distributions of Trust assets, see Item 8 - Note 7, "Litigation and Other Contingent Liabliities".
On July 17, 2000, the Trustees extended the time limit of the Trust's existence to September 25, 2001 from September 25, 2000 in order to continue the orderly disposal of assets and the settlement of claims and obligations of the Trust.
ITEM 3. LEGAL PROCEEDINGS
In accordance with the Trust Agreement, the Trust has assumed the obligation to make payments, where required, to discharge certain litigation and other contingent liabilities of City which existed at September 25, 1985 or which have subsequently arisen. For a description of litigation and claims currently pending or threatened which affect the Trust, see Item 8 - Note 7, "Litigation and Other Contingent Liabliities".
ITEM 5. MARKET PRICE OF UNITS
The Trust's Units of Beneficial Interest ("Units") trade on The Nasdaq stock exchange and appear daily in the list entitled Small Capitalization Issues, under the symbol CtyLTr or CNVLZ. Selected contemporaneous trading information is available on the Internet and can be accessed as follows - http://www.nasdaq-amex.com. The high and low prices for the Units during 2000 and 1999 were as follows:
As of December 29, 2000, there were approximately 13,400 holders of the Trust's Units of Beneficial Interest. No cash distributions were made in either 2000 or 1999.
The Trust may have a contingent liability with respect to an issue raised by the Internal Revenue Service upon audit of tax returns of City Investing Company filed with respect to periods ending on or before September 25, 1985. This issue is currently pending before the Tax Court of the United States. This issue, if resolved unfavorably, would result in a substantial liability. As another party is primarily responsible and others are jointly responsible for this contingent liability, the Trust is unable to estimate the ultimate cost, if any, of its exposure. The Trust also may have a contingent liability to the United States Environmental Protection Agency and other third parties.
The Trust recorded net income of $3,387,000 ($0.09 per unit) in 2000 compared with $2,799,000 ($0.07 per unit) in 1999 and $3,164,000 ($0.08 per unit) in 1998. It is difficult to compare amounts in comparable periods, as the financial statements of the Trust are prepared on the basis of accounting used for Federal income tax purposes; that is, amounts are reflected in the financial statements when amounts are received or paid.
In February 2000, the Trust sold 39 percent of its real estate acreage for $2,410,000 in cash, which resulted in a recognized long-term capital gain of $610,000. In May 2000, the Trust sold the remaining real estate acreage for $478,000 cash and a non-recourse promissory note of approximately $3,683,000 payable in five equal annual installments, bearing interest at 8 percent. The May 2000 sale resulted in a recognized long-term capital gain of $171,000. The deferred gain of $1,173,000 has been recorded as a reduction to the mortgage receivable of $3,683,000. In February 2000, the Trust received a final liquidating distribution of $20,000 from Global Bancorporation which resulted in a long-term capital loss of $562,000.
During 1998, the Trust realized a gain on disposition of assets of $20,000 attributable to the sale of approximately one-half of one per cent of the Trust's real estate. The remaining losses on dispositions of assets of $257,000 in 2000, compared to $105,000 in 1999 and $86,000 in 1998 consisted principally of legal fees attributable to issues that relate to periods before the liquidation of City.
Interest, dividend and other income of $3,711,000 in 2000, $3,185,000 in 1999 and $3,535,000 in 1998, was principally derived from interest earned on investment securities. In 2000, the increase was due to the Trust changing its pattern of investing.
Administrative expenses were $286,000 in 2000, $281,000 in 1999, and $305,000 in 1998.
At December 31, 2000, the Trust had cash and cash equivalents, investment securities and restricted funds of $73,802,000. The Trustees believe that such cash resources and investment securities are sufficient to meet all anticipated liquidity requirements.
No cash distributions have been made since May 12, 1990. For information regarding considerations affecting the future distribution of Trust assets, see Item 8 - Note 8, "Future Distributions of Trust Assets."
We have audited the accompanying balance sheets of the City Investing Company Liquidating Trust (the "Trust") as of December 31, 2000 and 1999, and the related statements of operations, cash flows and changes in trust equity for each of the years in the three-year period ended December 31, 2000. These financial statements are the responsibility of the Trust's Trustees. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit 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 the Trustees, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in Note 2 to the financial statements, the Trust's policy is to prepare its financial statements on the basis of accounting used for Federal income tax reporting purposes. Accordingly, the accompanying financial statements are not intended to present financial position, income and expenses, cash flows and changes in trust equity in conformity with accounting principles generally accepted in the United States of America.
See Note 7 to the financial statements for a description of litigation and other contingent liabilities.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of City Investing Company Liquidating Trust as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2000, on the basis of accounting referred to above.
KPMG LLP STATEMENTS OF OPERATIONS
December 31
Page 7 Year Ended December 31
Year Ended December 31
Page 8 Notes to Financial Statements Note 1 - Organization The City Investing Company Liquidating Trust (the "Trust") was created on September 25, 1985, pursuant to an Agreement and Declaration of Trust ("Trust Agreement") by and between City Investing Company ("City") and the three trustees of the Trust ("Trustees"). The Trust Agreement is governed by the laws of the State of Delaware.
On September 25, 1985, pursuant to a Plan of Complete Liquidation and Dissolution approved by stockholders of City on December 12, 1984, City transferred all its remaining assets and liabilities ("Trust Estate") to the Trust to assure compliance with Section 337 of the Internal Revenue Code. The sole purpose of the Trust is to liquidate the Trust Estate in a manner calculated to conserve and protect the Trust Estate, and to collect and distribute to the beneficiaries the income and proceeds therefrom in as prompt and orderly a fashion as possible after the payment of, or provision for, expenses and liabilities.
The common stock transfer books of City were permanently closed on September 25, 1985, and the holders of record of common stock of City as of the close of business on that date became holders of units of beneficial interest in the Trust on the basis of one unit of beneficial interest for each share of common stock of City held on September 25, 1985. After September 25, 1985, the outstanding certificates that formerly represented shares of common stock of City are deemed to evidence the same number of units of beneficial interest in the Trust.
The Trust Agreement, signed on September 25, 1985, set forth a time limit of three years for the disposition of the Trust's assets and distribution to the unit holders unless a later termination was required by the Trustees. As a result of the protracted nature of certain litigation and other claims asserted against the Trust, on September 7, 1988, April 23, 1990, September 2, 1992, June 16, 1994, June 27, 1996, July 28, 1998, July 8, 1999 and July 17, 2000, the Trustees extended the time limit of the Trust's existence to September 25, 1990, September 25, 1992, September 25, 1994, September 25, 1996, September 25, 1998, September 25, 1999, September 25, 2000, and then to September 25, 2001, respectively.
Note 2 - Significant Accounting Policies
Basis of presentation: The accompanying financial statements have been prepared on the basis of accounting used for Federal income tax purposes. Accordingly, certain revenue and the related assets are recognized when received rather than when earned; certain expenses are recognized when paid rather than when the obligation is incurred; and assets are reflected at their tax basis.
Valuation of assets and liabilities: The Trust Equity balance on September 25, 1985 was established at an amount equivalent to the number of units of beneficial interest outstanding (38,979,372) multiplied by the average of the high and low trading prices of such units on the first day of trading ($3.1875), or an aggregate of $124.2 million. The fair market value for Federal income tax purposes of each asset other than cash and cash equivalents was determined by that asset's proportionate share of the Trust Equity increased by accounts payable and decreased by cash and cash equivalents at September 25, 1985. The proportionate share of each of these assets was determined by the estimated value of such Trust asset in relation to the estimated value of all of the Trust assets other than cash and cash equivalents. In determining the estimated value of Trust assets, the Trustees evaluated, where appropriate, such factors as City's historical carrying values, expected amounts and dates of realization, prevailing interest rates, available market prices and restrictions with respect to disposition.
Income taxes: For Federal income tax purposes, the September 25, 1985 transfer of assets and liabilities to the Trust and distribution to stockholders of units in the Trust was treated as a distribution of assets and liabilities by City to its stockholders and a contribution by the stockholders of such net assets to the Trust in return for units. The Trust is treated as a grantor trust and not as a corporation. Accordingly, any income or loss of the Trust will not be taxable to the Trust but will be taxable to the unit holders as
Notes to Financial Statements (continued) if the unit holders had themselves realized the income or loss from their undivided interests in Trust assets.
Losses on dispositions of assets: Losses on dispositions of assets, net of gains, includes legal fees attributable to issues that relate to periods before the liquidation of City.
Net income per unit: Net income per unit is calculated by dividing net income of the Trust by the number of outstanding Units of Beneficial Interest.
Cash and cash equivalents: The Trust considers all investments in money market funds as cash equivalents.
Note 3 - Investment Securities
Investment securities at December 31, 2000 and December 31, 1999 consist of U.S. Treasuries and are carried at cost. The fair value of U.S. Treasuries is based on quoted market prices.
Investment securities at December 31, consist of the following:
Note 4 - Restricted Funds
Restricted funds at December 31, 2000 and 1999 represent a rent deposit of $4,000.
Note 5 - Investments
The Trust held 10,000 shares of Global Bancorporation which were carried at their tax basis. In February 2000, the Trust collected a final liquidating distribution of $20,000 from Global Bancorporation which resulted in a long-term capital loss of $562,000. The Trust holds 3,108,105 shares of Oklahoma Energy Corp. common stock, which are carried at their tax basis. At December 31, 2000 and 1999, the fair value of the Oklahoma Energy stock, based on quoted market prices, was $152,000 and $124,000 respectively.
Notes to Financial Statements (continued) Prior to January 2, 1990 the Trust held an undivided interest in a July 22, 1983 note received from Texas City Investment Company ("Texas City") in connection with a sale of land located in Galveston County, Texas. Texas City failed to fully pay the note in accordance with its terms. On January 2, 1990 the beneficial owners of the note (including the Trust) foreclosed on the property securing the note. As a result the Trust held an undivided interest in the property. The Trust realized a long term gain of $20,000 on a sale of approximately one-half of one per cent of the real estate during the third quarter of 1998. During 1998, a Geophysical Option Agreement was executed to sell oil and gas leases on the property. The Agreement provided the Trust with $87,000 of income. In April 1999, 212 acres were leased and the Trust received an additional $14,000. In February 2000, the Trust sold 39 percent of its real estate acreage for $2,410,000 in cash, which resulted in a recognized long-term capital gain of $610,000. In May 2000, the Trust sold the remaining real estate acreage for $478,000 cash and a non-recourse promissory note of approximately $3,683,000 payable in five equal annual installments including interest, bearing interest at 8 percent. The May 2000 sale resulted in a recognized long-term capital gain of $171,000. The deferred gain of $1,173,000 has been recorded as a reduction to the mortgage receivable of $3,683,000. Note 7 - Litigation and Other Contingent Liabilities In accordance with the Trust Agreement, the Trust has assumed the obligation to make payments, where required, to discharge certain litigation and other contingent liabilities of City which existed at September 25, 1985 or which have subsequently arisen. The Trust may have a contingent liability with respect to certain issues described below:
Marina Pacifica: Environmental Protection Agency Claim. The U.S. Environmental Protection Agency ("EPA") has identified Marina Pacifica as a Potentially Responsible Party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") with respect to the Site in Monterey, California. The Site, a landfill for municipal and industrial waste, was included on the National Priorities List in May 1986.
Marina Pacifica was a California limited partnership, the general partner of which was a subsidiary of City Investing Company. Marina Pacifica was in the business of developing and selling condominiums. Development of one construction site required the relocation of six oil wells. Drilling muds generated during the relocation activities were allegedly disposed of at the Site.
The EPA has conducted site control and monitoring activities at the Site since May 1986. In addition, EPA has conducted a number of removal actions and studies at the Site to stabilize site conditions and to evaluate the extent of contamination. EPA identified three initial stages of remedial action for the Site, the Records of Decision for which were signed in July 1987, November 1987, September 1988 and amended in September 1990. EPA has estimated the aggregate costs of the stages of remediation covered by those Records of Decision at $287 million.
In May 1989, a settlement was reached between EPA and a group of PRPs to conduct remedial activities for the first two stages and to pay past state and federal response and oversight costs incurred up to June 1, 1988. At that time, EPA listed Marina Pacifica as 53rd of 181 separate PRPs identified by EPA in terms of volume disposed at the Site. EPA has since entered into a subsequent settlement with additional PRPs for the same matter. Counsel for Marina Pacifica notified EPA that Marina Pacifica had been dissolved and that it would not participate in any settlements.
In September 1990, EPA sent a special notice letter to all PRPs, including Marina Pacifica, demanding payment of the total costs incurred by the government since June 1, 1988, which EPA estimated were at least $15.3 million. EPA also requested a good faith offer to perform or pay for the remedy selected for
Notes to Financial Statements (continued) the third remedial stage. EPA included an updated list of 269 PRPs of which Marina Pacifica appeared 57th. Marina Pacifica did not make a counter offer.
In September 1996, the EPA issued a fourth Record of Decision specifying final remedial measures for the Site. On September 30, 1997, the EPA sent a further special notice letter to all PRPs, including Marina Pacifica, that requested a good-faith offer to perform or pay for, among other things, the final remedial measures covered by the September 1996 Record of Decision. EPA estimates the costs related to matters covered by this notice letter at $289,000,000, which includes the cost of implementation of the final remedial measures, unreimbursed costs incurred by the government (as of June 30, 1997) and an estimate of future governmental administrative and enforcement costs. The EPA included an updated list of 280 PRPs on which Marina Pacifica appeared 84th in volumetric terms. Marina Pacifica did not make a counter offer, and has not received anything further from EPA. Based on its volumetric share and other material factors, counsel would expect actual payments, if any, required of Marina Pacifica to be a small fraction of the total costs at the Site.
By letter of July 12, 2000, EPA sent Rheem Manufacturing Co. ("Rheem") a request for information pursuant to Section 104 of CERCLA respecting the Admiral Home Appliance Superfund Site ("Admiral") in Williston, South Carolina. By letter of September 18, 2000, Edward D. Barnhill, Jr., counsel for Rheem advised the Trust of EPA's July 12 letter and purported to put the Trust on notice of a potential liability respecting Admiral. Mr. Barnhill asked that, if the Trust had less than $5 million that could be allocated to a clean-up, the Trust establish a reserve for that purpose. The apparent basis for Mr. Barnhill's inquiry was that at times City Investing Co. had owned Rheem and Guerdon Industries, Inc. ("Guerdon"), that Rheem and Guerdon had at times each owned Revco, Inc. ("Revco"), and Revco had owned a manufacturing facility that utilized Admiral. The Trust replied on October 4, 2000, saying that there was no apparent basis for regarding the Trust as liable respecting Admiral and asking whether Mr. Barnhill had any evidence that might support such liability. The Trust has received nothing further from Mr. Barnhill.
By letter of October 31, 2000, to the Trust, EPA requested information pursuant to Section 104 of CERCLA about Admiral. The Trust responded to this request on December 6, 2000, advising among other things that City Investing Company had had nothing to do with day-to-day operations of Rheem, Guerdon or Revco, or with Admiral, and, on the basis of advice of counsel, was not liable for environmental or other liabilities of Rheem. The Trust has not received anything further from EPA about Admiral.
AmBase Corporation v. City Investing Company Liquidating Trust, et al. On August 14, 2000, AmBase Corporation ("AmBase") filed an action against City Investing Company Liquidating Trust (the "Trust") and its trustees in the Delaware Chancery Court. AmBase claimed that the Trust is primarily liable for certain potential tax liabilities (the "Tax Obligation") arising out of City Investing Company's ("City") failure to withhold tax on interest income paid to the holders of certain debt instruments issued by a Netherlands Antilles subsidiary of City. AmBase had assumed responsibility for the Tax Obligation and had defended against the Internal Revenue Service's assertion of its claims in the Tax Court. Proceedings in the Tax Court have been completed but no decision has yet been rendered. The present amount of the potential Tax Obligation with accrued interest is approximately $140 million. AmBase also seeks the recovery of expenses incurred in defense of the matter. It is the Trust's position that AmBase is liable for the Tax Obligation under the terms of an Assignment and Assumption Agreement dated as of August 30, 1985 (the "Assumption Agreement") between City and AmBase. The Trust moved to dismiss the AmBase complaint and the Delaware Chancery Court dismissed the complaint on statute-of-limitations grounds on January 3, 2001. On February 7, 2001 the Delaware Chancery Court denied AmBase's Motion for Reargument. On January 30, 2001 AmBase refiled its complaint in the United States District Court for the Southern District of New York. The Trust believes that AmBase assumed liability for the Tax Obligation under the Assumption Agreement and will vigorously defend against AmBase's claim.
Notes to Financial Statements (continued) Income Tax Matters. The Trust may have a contingent liability with respect to the issue described in the preceding paragraph. This issue is currently pending before the Tax Court of the United States. This issue, if resolved unfavorably, would result in a substantial liability. As another party is primarily responsible and others are jointly responsible for this contingent liability, the Trust is unable to estimate the ultimate cost, if any, of its exposure.
Other Matters. The Trust also remains subject to possible claims by other third parties.
Lease Commitment. The Trust entered into a one-year lease of office space that expires June 30, 2001 with a monthly rental payment of $2,350. Rent expense was $26,000 in 2000, $22,000 in 1999, and $17,000 in 1998.
Note 8 - Future Distributions of Trust Assets
The existence of the contingent liabilities referred to in Note 7 will affect the timing of future distributions of Trust assets.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Trustees of the Trust are Geo. T. Scharffenberger, Eben W. Pyne and Lester J. Mantell. Each Trustee will serve for the term of the Trust subject to his earlier resignation or removal. There are no family relationships between the Trustees.
Geo T. Scharffenberger (81) was a director and Chairman of the Board of AmBase Corporation until January 26, 1993. Mr. Scharffenberger was formerly Chairman and a director of City and served as City's Chief Executive Officer from 1966 until May 1985.
Eben W. Pyne (83) was a director of AmBase Corporation until January 26, 1993. Mr. Pyne retired in 1982 as a Senior Vice President of Citibank, N.A. He was also a director of City.
Lester J. Mantell (63) was an Assistant Vice President - Tax of AmBase Corporation from April 1995 to December 1996. He served as the Executive Vice President, Chief Financial Officer and Treasurer of AmBase Corporation from October 1994 to January 1995.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to Section 9.1 of the Trust Agreement, the Trustees, in lieu of commissions or other compensation fixed by law for Trustees, receive as compensation for services thereunder the aggregate sum of $36,000 per year to be allocated equally among the Trustees. Each Trustee is also reimbursed from the Trust Estate for all expenses reasonably incurred by him in the performance of his duties pursuant to the Trust Agreement.
There are no plans, pursuant to which cash or non-cash compensation was paid or distributed during the last fiscal year, or is proposed to be paid or distributed in the future, to the Trustees, except for amounts that one Trustee may receive as a holder of Units of Beneficial Interest.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following are the only persons known to the Trust to own beneficially (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) more than five percent of the Trust's Units of Beneficial Interest. The information provided below was obtained from Amendment No. 5 to Schedule 13D of Goldman, Sachs & Co., as filed with the Securities and Exchange Commission ("SEC") as of September 11, 1992, from Form 4 of Farallon Capital Management, L.L.C. filed with the SEC as of January 9, 2001, and from Amendment No. 2 to Schedule 13G as filed with the SEC by Franklin Mutual Advisers, LLC as of January 18, 2000.
The following table shows the Units of Beneficial Interest of the Trust beneficially owned by each Trustee and the Trustees as a group as of January 12, 2001.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Notes to Financial Statements (continued) 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 on this 21st day of February 2001.
CITY INVESTING COMPANY LIQUIDATING TRUST
LESTER J. MANTELL
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 on the 21st day of February 2001. A majority of the Trustees:
GEO. T. SCHARFFENBERGER
EBEN W. PYNE
LESTER J. MANTELL
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